# Question

Silicon Wafers, Inc. (SWI), is debating whether or not to extend credit to a particular customer. SWI’s products, primarily used in the manufacture of semiconductors, currently sell for $975 per unit. The variable cost is $540 per unit. The order under consideration is for 15 units today; payment is promised in 30 days.

a. If there is a 20 percent chance of default, should SWI fill the order? The required return is 2 percent per month. This is a one-time sale, and the customer will not buy if credit is not extended.

b. What is the break-even probability in part (a)?

c. This part is a little harder. In general terms, how do you think your answer to part (a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is $910 per unit.

a. If there is a 20 percent chance of default, should SWI fill the order? The required return is 2 percent per month. This is a one-time sale, and the customer will not buy if credit is not extended.

b. What is the break-even probability in part (a)?

c. This part is a little harder. In general terms, how do you think your answer to part (a) will be affected if the customer will purchase the merchandise for cash if the credit is refused? The cash price is $910 per unit.

## Answer to relevant Questions

Billy’s Exterminators, Inc., has sales of $734,000, costs of $315,000, depreciation expense of $48,000, interest expense of $35,000, and a tax rate of 35 percent. What is the net income for this firm?The 2010 balance sheet of Greystone, Inc., showed current assets of $3,120 and current liabilities of $1,570. The 2011 balance sheet showed current assets of $3,460 and current liabilities of $1,980. What was the company’s ...Corporation Growth has $76,000 in taxable income, and Corporation Income has $7,600,000 in taxable income.a. What is the tax bill for each firm?b. Suppose both firms have identified a new project that will increase taxable ...Specialized ratios are sometimes used in specific industries. For example, the so-called book-to-bill ratio is closely watched for semiconductor manufacturers. A ratio of .93 indicates that for every $100 worth of chips ...Consider the following information about two alternative credit strategies:The higher cost per unit reflects the expense associated with credit orders, and the higher price per unit reflects the existence of a cash ...Post your question

0