Milo's Machining is a new business in town and the company has asked to establish credit with your firm. Milo would like to buy some equipment today at a cost of $499,999. Your variable cost for that equipment is $385,000 and your monthly interest rate is 1.5 percent. You feel that the company could become a regular customer if you grant 30 days credit. You think that the probability of default is 5 percent. What would be the net present value of this decision? Beyond your calculations what are two other things that should be considered in making this decision?

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Net present value of an investment present value of cash inflow present value of cash out... View the full answer