Info

Current Policy

New Policy

Price per unit

$ 175

$ 175

Cost per unit

$ 130

$ 130

Sales per period in units

1,000

1,100

21A.2 Discounts and Default Risk The De Long Corporation is considering a change in credit policy. The current policy is cash only, and sales per period are 2,000 units at a price of $110. If credit is offered, the new price will be $120 per unit and the credit will be extended for one period. Unit sales are not expected to change, and all customers are expected to take the credit. De Long anticipates that 4 percent of its customers will default. If the required return is 2 percent per period, is the change a good idea? What if only half the customers take the offered credit?

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