If the Probability of Collection Is 65%,should You Grant Credit

question 71

Multiple Choice

If the probability of collection is 65%,should you grant credit to a customer wishing to purchase a $2,000 item that cost $1,333.33 to produce? Assume all cash flows are discounted to present value and there is no chance of subsequent sales.

• A) No; the expected loss is $33.33.
• B) No; the expected loss is $150.00.
• C) Yes; the expected profit is $33.33.
• D) Yes; the expected profit is $150.00.

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Definitions:

Orally Agreed-on Condition

An orally agreed-on condition refers to terms or stipulations in a contract that have been agreed upon verbally and not written down.

Parallel Rights

Similar or concurrent rights held by different entities that can exist simultaneously without interfering with each other.

Equal Rights

The principle that all people should have the same legal rights and opportunities regardless of personal characteristics.

Contract Right

A legally enforceable claim that derives from a contract, allowing a party to require another party to perform or refrain from performing certain acts.