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Air Spares is a wholesaler that stocks engine components and test equipment for the commercial...

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Finance

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Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $1.6 million per unit, and the credit price is $1.87 million each. Credit is extended for one period, and based on historical experience, payment for about 1 out of every 200 such orders is never collected. The required return is 2.9 percent per period. a-1. Assuming that this is a one-time order, what is the NPV per unit? a-2. Should the order be filled? b. What is the break-even probability of default for a one-time order? c-1. Suppose that customers who don't default become repeat customers and place the same order every period forever. Further assume that repeat customers never default. What is the NPV per unit? c-2. Should the order be filled if the customer will become a repeat customer? c-3. What is the break-even probability of default assuming that the customer will become a repeat customer

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