Zozan Corp. manufactures Hydrogen engines automobiles. Recently 450 new ord requesting credit. The variable cost is $35,000 per unit, and the credit price is $43, extended for one period, and based on historical experience, payments for 20% c collected. The required return is 4% per period. Assuming a repeat customer, should it be filled by the firm? The customer will not

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Zozan Corp. manufactures hydrogen engine automobiles. Recently, 450 new orders were placed by customers requesting credit. The variable cost is $35,000 per unit, and the credit price is $43,000 each. Credit is extended for one period, and based on historical experience, payments for 20% of the orders are never collected. The required return is 4% per period.

Assuming a repeat customer, should it be filled by the firm? The customer will not buy if credit is not extended.
Transcribed Image Text:Zozan Corp. manufactures hydrogen engine automobiles. Recently, 450 new orders were placed by customers requesting credit. The variable cost is $35,000 per unit, and the credit price is $43,000 each. Credit is extended for one period, and based on historical experience, payments for 20% of the orders are never collected. The required return is 4% per period. Assuming a repeat customer, should it be filled by the firm? The customer will not buy if credit is not extended.
Expert Solution
Step 1: Define=NPV of credit policy

Net present value is difference between the present value of cash flow and initial investment made by company in credit policy.

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