Clearwater Inc. has a new customer default rate of 20%. Each new customer makes $500 purchase on
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Question:
- Clearwater Inc. has a new customer default rate of 20%. Each new customer makes $500 purchase on average, and this generates a present value of profit of $200 and a 30% chance of a second order next year. The default rate on second orders is only 5%. If the interest rate is 6%, what is the expected profit from each new customer?
- (Examine only the first two periods of potential orders.)
Related Book For
Financial Reporting Financial Statement Analysis and Valuation a strategic perspective
ISBN: 978-1337614689
9th edition
Authors: James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
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