Precor Sells Exercise Equipment to Thousands of Health Clubs and Sporting

question 5

Multiple Choice

Precor sells exercise equipment to thousands of health clubs and sporting goods stores around the world.Its average order size is about $3,500.Which of the following techniques would you recommend to Precor to deal with its credit risk?

• A)insure the receivables through the FCIA,which will charge a 1.2% fee to cover 90% of the receivables
• B)use a factor,who will charge a 1.3% export factoring fee
• C)request letters of credit from customers.The customers will have to pay $75 plus 0.5% for each letter of credit.To remain competitive,Precor will have to reduce its prices to reimburse customers for their L/C costs
• D)all are about equally acceptable

---

Definitions:

Total Cost

The sum of fixed and variable costs incurred in the production of goods or services.

Output

The total quantity of goods or services produced by an individual, firm, or country within a certain period.

Diminishing Marginal Returns

A principle in economics that indicates a decreasing level of incremental output for each additional unit of input, after a certain point.