You can make a one-time sale if you will grant a new customer 30 days to pay. This customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should you grant credit to this customer? Why or why not?
A) Yes; because the NPV of the potential sale is $33.05
B) Yes; because the NPV of the potential sale is $44.09
C) Yes; because the NPV of the potential sale is $13.02
D) No; because the NPV of the potential sale is −$13.05
E) No; because the NPV of the potential sale is −$2.65

Question

You can make a one-time sale if you will grant a new customer 30 days to pay.  This customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should you grant credit to this customer? Why or why not?
A) Yes; because the NPV of the potential sale is $33.05
B) Yes; because the NPV of the potential sale is $44.09
C) Yes; because the NPV of the potential sale is $13.02
D) No; because the NPV of the potential sale is −$13.05
E) No; because the NPV of the potential sale is −$2.65

Quizplus · Accepted Answer

The Answer of You can make a one-time sale if you will grant a new customer 30 days to pay.  This customer wants to purchase an item with a sales price of $499 and a variable cost of $287. You estimate the probability of default at 33 percent. The monthly interest rate is .98 percent. Should you grant credit to this customer? Why or why not?
A) Yes; because the NPV of the potential sale is $33.05
B) Yes; because the NPV of the potential sale is $44.09
C) Yes; because the NPV of the potential sale is $13.02
D) No; because the NPV of the potential sale is −$13.05
E) No; because the NPV of the potential sale is −$2.65

You Can Make a One-Time Sale If You Will Grant