Which of the Following Credit Decisions Appears Correct for a Customer

question 50

Multiple Choice

Which of the following credit decisions appears correct for a customer who intends to order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20% and the discount rate is 10%?

• A) Reject because expected loss equals $320
• B) Reject because expected profit equals $0
• C) Accept because expected profit equals $1,440
• D) Accept because expected profit equals $3,200