Copy Makers Co. (CMC) has just received a credit request from a new customer who wants to purchase a copying machine. As input to its decision of whether to grant credit, CMC has made the following estimates and assumptions:

- If CMC denies the customer credit, there is a 20 percent chance that the customer will buy the copying machine with cash anyway. Assume that the customer will not make the purchase if s/he does not pay with cash in this scenario.

- If CMC grants credit, there is a 70 percent chance that the customer will be a good credit risk. (CMC will collect 100 percent of the purchase price.)

- If CMC grants credit, and the customer is a bad credit risk, CCC has two options.

Under the first option, CMC would continue to send the customer a bill and hope it is eventually paid. This nonvigorous enforcement has no cost. Under this option, CMC will collect 100 percent, 50 percent, or 0 percent of the amount owed, with probabilities 0.1, 0.2, and 0.7 , respectively.

Under the second option, CMC would vigorously pursue the collection of the amount owed. To do so would cost CCC 25 percent of the amount owed, regardless of the amount eventually collected. Under this option, CMC will collect 100 percent, 50 percent, or 0 percent of the amount owed, with probabilities 0.3, 0.5, and 0.2 , respectively.

The copy machine sells for $8,000 and cost CCC $5,000. Ignore the time value of money.

- What is the most likely scenario in terms of percent collected of the amount owed if CMC apply nonvigorous enforcement on the bad credit risk customer?

- If CMC denies the customer credit, is the customer more likely to buy with cash or not buy at all?

- How much will CMC receive in dollars if it can collect 50 percent of the amount owed?