Maxwell Corporation has a customer who wants to purchase $50,000 of goods on credit. Maxwell...
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Maxwell Corporation has a customer who wants to purchase $50,000 of goods on credit. Maxwell estimates that the customer has a 97% probability of paying the $50,000 in four months and a 3% probability of a complete default (paying no cash at all). Maxwell assumes an investment of 85% of the amount, made at the time of the sale, and a required return of 10% APY. Based on these numbers Maxwell estimates the NPV to be $4,483.37. What if Maxwell is wrong and it takes the customer 18 months to pay. Will the NPV still be positive?
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