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:

Indirect Price Discrimination

A pricing strategy where different prices are charged for the same product or service in different markets or segments, not directly by customer characteristics.

Decreasing Returns

Refers to a situation in which adding more of a production factor, such as labor or capital, results in progressively smaller increases in output.

Direct Price Discrimination

A pricing strategy where a seller adjusts prices for different customers based on observable personal characteristics or willingness to pay.

Elastic Demand

A situation where the demand for a good or service greatly changes in response to changes in price.