Mike Is New in Town and Has Asked to Establish

question 225

Multiple Choice

Mike is new in town and has asked to establish credit with your firm. He would like to buy some lawn equipment today at a cost of $4,999. Your variable cost for that equipment is $3,850 and your monthly interest rate is 1.5 percent. You feel that Mike could become a regular customer if you grant him 30 days credit. You also feel that the probability of default is only 5 percent. What would be the net present value of this decision?

• A) $66,667
• B) $68,920
• C) $69,002
• D) $69,234
• E) $69,399

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