Xian Corporation Predicts That If a Customer Pays on the First

question 68

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 Present value of $700 profit for 10 years at 9% = $4,492
• P x PV(REV - COST) - (1-p) x PV(COST)

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