Ajax Predicts That If a Customer Pays on the First

question 80

Multiple Choice

Ajax 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 $350 per year for 12 years.Ajax calculates present value with a 15% rate of return.There is a 90% probability that Ajax will secure a reliable customer.However, if the customer defaults, Ajax will have to incur a loss of $500.Determine the expected benefit if credit is granted.

• A)$1,657
• B)$1,757
• C)$1,857
• D)$1,957

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Definitions:

Corporate Income Taxes

Taxes imposed on the net income or profit of corporations, calculated after deducting expenses like cost of goods sold and wages.

Expected Profit Rate

The forecasted return on an investment or business venture, calculated as the potential profit over time divided by the initial cost.

Interest Rate

The slice of a loan subjected to interest rates for the borrower, commonly conveyed as an annual percentage of the loan's remaining sum.

Invest

The practice of assigning financial resources with the aim of receiving profits or earnings.