You are considering a temporary opening of a kiosk in the local mall. Any sale you make will be a one-time sale. There is only a 45 percent chance that you will collect your money on a credit sale. The product you want to sell has a variable cost of $4.10 and a sales price of $5.75. The monthly interest rate is 1.3 percent. Should you offer people 30 days to pay? Why or why not?

Question

Quizplus · Accepted Answer

The net present value (NPV) of a potential sale can be calculated by considering the probability of collecting the money, the sales price, the variable cost, and the monthly interest rate. Given a 45% chance of collecting on a credit sale, a sales price of $5.75, a variable cost of $4.10, and a monthly interest rate of 1.3%, the expected profit per sale is reduced by the risk of not collecting and the cost of financing the credit sale. The correct calculation should account for these factors, leading to a negative NPV, indicating that the expected value of offering credit is less than the cost, making option D the correct choice.

You Are Considering a Temporary Opening of a Kiosk in the Local