Candy Corporation Sells a Product for $25 with Costs of $20

question 39

Multiple Choice

Candy Corporation sells a product for $25 with costs of $20 per unit.Candy uses a 12% rate of return for all its calculations.The CFO estimates that there is a 25% probability of a prospective new customers seeking credit will go bankrupt within the next 6 months.Customer wishes to place an order for 2,500 units of the product

• A)Extend credit; total benefit of $5,300
• B)Extend credit; total benefit of $5,500
• C)Do not extend credit; total loss of $5,300
• D)Do not extend credit; total loss of $5,500

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Definitions:

Cash Equivalents

Short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value.

Bank Notes

Paper money issued by a central bank, constituting a common form of legal tender in many economies around the world.

Operating Activities

Activities that constitute the primary or main activities of a company, including production, sales, and delivery of goods and services.