What credit decision is appropriate for a potential customer that offers an 80% chance of paying on a $10,000 sale that has an 80% cost?
A) Grant credit since the expected profit is $3,200.
B) Grant credit since the expected profit is $800.
C) Refuse credit since the expected profit is zero.
D)Refuse credit since the expected loss is $3,000.

Question

Quizplus · Accepted Answer

Expected profit from offering credit = .8 × PV($10,000 - 8,000) - .2 × PV($8,000) = $0

What Credit Decision Is Appropriate for a Potential Customer That