Mid-West Marine Products currently sells its light-weight boat lifts for $3,500 each. The unit cost of each lift is $2,600. On average, the firm sells 2000 lifts a year on a cash basis. Consumer Credit Check is offering Mid-West a credit screening system at the rate of $25 per screen, and assures them that the system will be at least 99% accurate. Mid-West’s research indicates that if they offer credit terms, it will boost their sales by 40% per year. They have also learned that the typical default rate in their industry is around 3%.
a) Should Mid-West start offering credit terms?
b) If they do offer credit, should they do so with or without CCC’s credit screening services? Please explain.