You have the opportunity to make a one-time sale if you will give a new customer 30 days to pay.You suspect there is a 10 percent chance this person will never pay you.The sales price of the item the customer wants to buy is $289.Your variable cost on that item is $156 and your monthly interest rate is 1.75 percent.Should you grant credit to this customer? Why or why not?
A)yes; because the NPV of the potential sale is $113.05
B)yes; because the NPV of the potential sale is $99.63
C)no; because the NPV of the potential sale is -$133.00
D)no; because the NPV of the potential sale is -113.05
E)no; because the NPV of the potential sale is -$89.65

Question

Quizplus · Accepted Answer

NPV = -$156 + {[1 - 0.10] × [$289/(1 + 0.0175)]} = $99.63

You Have the Opportunity to Make a One-Time Sale If