What is the break-even probability of collection for a firm that has a 40% profit margin (ignore present value)?

Question

Quizplus · Accepted Answer

To calculate the break-even probability of collection, we need to set the equation: 
p x profit margin - (1 - p) x collection cost = 0 
Given that the profit margin is 40%, we can substitute 0.4 for profit margin and 0.6 (1 - 0.4) for the collection cost. 
p x 0.4 - (1 - p) x 0.6 = 0 
Solving for p, we get: 
0.4p - 0.6 + 0.6p = 0 
1p = 0.6 
p = 0.6 or 60%. 
Therefore, the break-even probability of collection for a firm with a 40% profit margin is 60%.

What Is the Break-Even Probability of Collection for a Firm