Which of the Following Credit Decisions Appears Correct for a Customer

Which of the following credit decisions appears correct for a customer that intends to order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20% and the discount rate is 10%?

A) Reject because expected loss equals $320
B) Reject because expected profit equals $0
C) Accept because expected profit equals $1,440
D) Accept because expected profit equals $3,200 expected profit = (p x PV of profit) - (1 - p) x cost
= ) 8 x ($200/.10) - (1 - .8) x $800
= $1,600 - $160