The default rate of Demurrage Associates' new customers has been running at 10%. The average sale for each new customer amounts to $800, generating a present value of profit of $100 and a 40% chance of a second order next year. The default rate on second orders is only 2%. If the interest rate is 9%, what is the expected profit from each new customer?

Answer rating: 100% (QA)

To calculate the expected profit from each new customer we need to consider the probabilities ... View the full answer