Question 20.S-TP.2: Credit Where Credit Is Due You are trying to decide whether ...

Fundamentals of Corporate Finance Standard Edition

Credit Where Credit Is Due You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $15 per unit; the selling price is $22. This customer wants to buy 1,000 units today and pay in 30 days. You think there is a 15 percent chance of default. The required return is 3 percent per 30 days. Should you extend credit? Assume that this is a one-time sale and that the customer will not buy if credit is not extended.

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