Surf City sells its network browsing software for $$43$ per copy to computer software distributors and allows its customers $1$ month to Surf City sells its network browsing software for $$43$ per copy to computer software distributors and allows its customers $1$ month to

pay their bills. The cost of the software is $$28$ per copy. The industry is very new and unsettled, however, and the probability that a

new customer granted credit will go bankrupt within the next month is $25\%.$ The firm is considering switching to a cash$-$on$-$delivery

credit policy to reduce its exposure to defaults on trade credit. The discount rate is $1\%$ per month.

Required:

a$-1.$ What is the present value of the expected profit under the current credit policy?

a$-2.$ What is the expected profit under the cash$-$on$-$delivery policy? If the firm switches policies, sales will fall by $45\%.$

b$-1.$ What would be the present value of the expected profit if a customer that is granted credit and pays its bills can be expected to

generate repeat orders with negligible likelihood of default for each of the next $6$ months? Similarly, customers that pay cash also will

generate on average $6$ months of repeat sales.

b$-2.$ What would be the present value of the expected profits under the cash$-$on$-$delivery policy, given the sales information from $($b$-1)?$

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

Req $A1$ and $A2$ Req $B1$ and B$2$

b$-1.$ What would be the present value of the expected profit if a customer that is granted credit and pays its bills can be

expected to generate repeat orders with negligible likelihood of default for each of the next $6$ months? Similarly, customers

that pay cash also will generate on average $6$ months of repeat sales.

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

b$-2.$ What would be the present value of the expected profits under the cash$-$on$-$delivery policy, given the sales information

from $(b-1)?$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

pay their bills. The cost of the software is $$28$ per copy. The industry is very new and unsettled, however, and the probability that a

new customer granted credit will go bankrupt within the next month is $25\%.$ The firm is considering switching to a cash$-$on$-$delivery

credit policy to reduce its exposure to defaults on trade credit. The discount rate is $1\%$ per month.

Required:

a$-1.$ What is the present value of the expected profit under the current credit policy?

a$-2.$ What is the expected profit under the cash$-$on$-$delivery policy? If the firm switches policies, sales will fall by $45\%.$

b$-1.$ What would be the present value of the expected profit if a customer that is granted credit and pays its bills can be expected to

generate repeat orders with negligible likelihood of default for each of the next $6$ months? Similarly, customers that pay cash also will

generate on average $6$ months of repeat sales.

b$-2.$ What would be the present value of the expected profits under the cash$-$on$-$delivery policy, given the sales information from $($b$-1)?$

Answer is complete but not entirely correct.

Complete this question by entering your answers in the tabs below.

a$-1.$ What is the present value of the expected profit under the current credit policy?

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

a$-2.$ What is the expected profit under the cash$-$on$-$delivery policy? If the firm switches policies, sales will fall by $45\%.$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.