On each nondelinquent sale,Cast Iron Company receives revenues with a present value of $1,200 and incurs costs with a present value of $1,000.Suppose that 10% of Cast Iron's customers are slow payers and that slow payers have a probability of 30% of defaulting on their bills.If it costs $5 to determine whether a customer has been a prompt or slow payer in the past,should Cast Iron undertake such a check? Hint: What is the expected savings from the credit check? It will depend on both the probability of uncovering a slow payer and the savings from denying these payers credit.

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The Answer of On each nondelinquent sale,Cast Iron Company receives revenues with a present value of $1,200 and incurs costs with a present value of $1,000.Suppose that 10% of Cast Iron's customers are slow payers and that slow payers have a probability of 30% of defaulting on their bills.If it costs $5 to determine whether a customer has been a prompt or slow payer in the past,should Cast Iron undertake such a check? Hint: What is the expected savings from the credit check? It will depend on both the probability of uncovering a slow payer and the savings from denying these payers credit.

On Each Nondelinquent Sale,Cast Iron Company Receives Revenues with a Present