Smith Corp

question 41

Essay

Smith Corp.produces a product that generates repeat orders on an annual basis.The product has a current price of $2,500 and a current cost of $2,100.The company uses a 15% opportunity cost of capital.Due to the product's high cost,there is a 17% chance that each new customer will default on payment.If the customer does not default,then business from that customer forms an infinite annuity income stream.What is the expected profit and break-even probability from granting credit under these conditions?

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Definitions:

Sales Department

The division of a business that is responsible for selling products or services and generating revenue.

Expense Allocation

The process of distributing or assigning costs to different departments, projects, or cost centers within an organization.

Profit Margin

A financial metric used to assess a company's profitability by calculating the ratio of net income to revenue.

Net Income

The total profit of a company after all expenses and taxes have been subtracted from revenue.