Xian Corporation Predicts That If a Customer Pays on the First

question 27

Multiple Choice

Xian Corporation predicts that if a customer pays on the first sale, it is assured that it is a reliable customer.As such, it expects that customer to generate a net profit of $700 per year for 10 years.Ajax calculates present value with a 9% rate of return.There is a 70% probability that Ajax will secure a reliable customer.However, if the customer defaults, Ajax will have to incur a loss of $800.Determine the expected benefit if credit is granted.

• A)$2,804
• B)$2,904
• C)$3,004
• D)$3,104

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Definitions:

Oligopoly

A market structure characterized by a small number of firms dominating the market, often leading to limited competition.

Monopolistic Competition

A market structure characterized by many firms offering products or services that are similar but not perfect substitutes, leading to each firm having some market power.

Differentiated Products

Goods or services that are distinguished from others based on quality, features, or brand, making them non-identical and often allowing for market power.

Monopolistically Competitive

A market structure where many firms sell products that are similar but not identical, allowing for some degree of market power and product differentiation.