Consider the case of the Cast Iron Company. On each nondelinquent sale, Cast Iron receives revenues...

50.1K

Verified Solution

Question

Finance

Consider the case of the Cast Iron Company. On eachnondelinquent sale, Cast Iron receives revenues with a presentvalue of $1,320 and incurs costs with a present value of $1,000.Cast Iron’s costs have increased from $1,000 to $1,170. Assumingthat there is no possibility of repeat orders and that theprobability of successful collection from the customer isp = 0.85, answer the following.
a-1. What is the expected profit of grantingcredit? (Do not round intermediatecalculations.)
a-2. Should Cast Iron grant or refusecredit?
Grant
Refuse
b. What is the break-even probability ofcollection? (Enter your answer as a percent rounded to 1decimal place.)

Answer & Explanation Solved by verified expert

4.1 Ratings (807 Votes)

1 a The present value of revenue generate by selling one unit of non delinquent sale of cast iron 1320 The present value of cost of one unit of cast iron 1170 assuming increase of See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

Consider the case of the Cast Iron Company. On eachnondelinquent sale, Cast Iron receives revenues with a presentvalue of $1,320 and incurs costs with a present value of $1,000.Cast Iron’s costs have increased from $1,000 to $1,170. Assumingthat there is no possibility of repeat orders and that theprobability of successful collection from the customer isp = 0.85, answer the following.a-1. What is the expected profit of grantingcredit? (Do not round intermediatecalculations.)a-2. Should Cast Iron grant or refusecredit?GrantRefuseb. What is the break-even probability ofcollection? (Enter your answer as a percent rounded to 1decimal place.)