A customer has ordered goods generating a present value of $800. The present value of production costs is $600. Under what conditions should you extend credit if there is no possibility of repeat orders?
A)If the probability of payment exceeds 0.67
B)If the probability of payment exceeds 0.80
C)If the probability of payment exceeds 0.75
D)If the probability of payment exceeds 0.90

Question

Quizplus · Accepted Answer

The decision to extend credit should be based on the probability of payment, which should exceed the present value of production costs ($600) divided by the present value of the goods ordered ($800), which is equal to 0.75. Therefore, option C is the best choice.

A Customer Has Ordered Goods Generating a Present Value of $800