You Are Considering a Temporary Opening of a Kiosk in the Local

question 46

Multiple Choice

You are considering a temporary opening of a kiosk in the local mall. Any sale you make will be a one-time sale. There is only a 45 percent chance that you will collect your money on a credit sale. The product you want to sell has a variable cost of $4.10 and a sales price of $5.75. The monthly interest rate is 1.3 percent. Should you offer people 30 days to pay? Why or why not?

• A) Yes; because you will earn $2.23 on every credit sale you make.
• B) Yes; because you will earn $5.68 on every credit sale you make.
• C) No; because the net present value of the potential sale is -$1.55.
• D) No; because the net present value of the potential sale is -$.98.
• E) It doesn't matter; because the present value of the potential sale is $0.

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Definitions:

Repayment Period

The time frame agreed upon within a loan agreement for the borrower to pay back the borrowed amount plus any applicable interest.

Promissory Note

Commercial paper or instrument in which the maker promises to pay a specific sum of money to another person, to his order, or to bearer.

Cosign

To sign jointly with another or others, especially in agreeing to be responsible for a loan if the primary borrower defaults.

Minor

A person who is under the legal age of majority, and therefore has limited legal rights and responsibilities.