Credit: A firm is considering two alternative credit strategies: All Cash Credit Price per unit...
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Credit: A firm is considering two alternative credit strategies: All Cash Credit Price per unit $50 $55 Cost per unit $25 $27 Quantity Sold 6,000 6,700 Payment Probability 100% 92% If the firm decides to grant credit to customers the Days to Collect will be 60 days. During that time the firm will have to borrow $100,000 on average, at a rate of 1% per month. a). Should the firm grant credit? (Use calculations to support your answer). b). The firm is considering using a credit agency to identify customer that will not pay and will drop the quantity sold to 6,500 units. The credit agency will charge an initial $1,500 fee and then $2.00 for every credit check after that. If the agency can identify all customers that will not pay should the firm use the credit agency?
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