Company LMN's sales price per unit of its product is RM25. Its variable cost per unit...

 

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Company LMN's sales price per unit of its product is RM25. Its variable cost per unit is RM15. A new customer has applied for a 30-day credit, and is likely to be a repeat customer if the credit is approved. The probability of default of the customer is 40 percent. Should the customer be extended credit based on the net present value (NPV) criteria, if the discount rate is 2 percent per month? (4 marks) Among the SC's of credit, which are the most and least important C's for trade credit? Explain with brief justification. (5 marks) Company LMN's sales price per unit of its product is RM25. Its variable cost per unit is RM15. A new customer has applied for a 30-day credit, and is likely to be a repeat customer if the credit is approved. The probability of default of the customer is 40 percent. Should the customer be extended credit based on the net present value (NPV) criteria, if the discount rate is 2 percent per month? (4 marks) Among the SC's of credit, which are the most and least important C's for trade credit? Explain with brief justification. (5 marks)

Answer rating: 100% (QA)

To determine whether the customer should be extended credit based on the net present value NPV criteria we need to calculate the NPV of the expected c... View the full answer