You Are Considering Setting Up a Booth at a Street

question 255

Multiple Choice

You are considering setting up a booth at a street fair in a town not far from where you are located. Any sale you make will be a one-time sale. There is only a 50 percent chance that you will collect
Your money on a credit sale. The product you want to sell has a variable cost of $3.90 and a sales
Price of $5.00. The monthly interest rate is 1.5 percent. Should you offer people 30 days to pay?
Why or why not?

• A) Yes; because you will earn $.98 on every credit sale you make.
• B) Yes; because you will earn $1.44 on every credit sale you make.
• C) No; because the net present value of the potential sale is -$1.44.
• D) No; because the net present value of the potential sale is -$.98.
• E) It doesn't matter; because the present value of the potential sale is $0.

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