a. Based on this information, should credit be granted? Basic b. In part (a), what does the credit price per unit have to be to break even? (continued)

c. In part (a), suppose we can obtain a credit report for $2 per customer. Assuming that each customer buys one unit and that the credit report correctly identifies all customers who will not pay, should credit be extended?

5. NPV of Credit Policy Switch Suppose a corporation currently sells Q units per month for a cash-only price of P. Under a new credit policy that allows one month's credit, the quantity sold will be Q and the price per unit will be P'. Defaults will be ^ percent of credit sales. The variable cost is v per unit and is not expected to change. The percentage of customers who will take the credit is a, and the required return is R per month. What is the NPV of the decision to switch? Interpret the various parts of your answer.

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