What is the minimum probability of collection that should be accepted by firms that have a 25% profit margin? Ignore the time value of money and assume that there is no chance of subsequence sales.
A) 20%
B) 25%
C) 50%
D) 75%

Question

Quizplus · Accepted Answer

In order for a firm with a 25% profit margin to break even on a sale, they need to collect at least 75% of the sale price. Therefore, the minimum probability of collection that should be accepted is 25%, since if the probability of collection were any lower, the firm would not be able to make a profit.

What Is the Minimum Probability of Collection That Should Be