The default rate of Demurrage Associates' new customers has been running at 10 percent. The average sale for each new customer amounts to $800, generating a present value of profit of $100 and a 40 percent chance of a second order next year. The default rate on second orders is only 2 percent. If the interest rate is 9 percent, what is the expected profit from each new customer? (Examine only the first two periods of potential orders.)
A)$88.70
B)$47.74
C)$43.25
D)$50.83

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The Answer of The default rate of Demurrage Associates' new customers has been running at 10 percent. The average sale for each new customer amounts to $800, generating a present value of profit of $100 and a 40 percent chance of a second order next year. The default rate on second orders is only 2 percent. If the interest rate is 9 percent, what is the expected profit from each new customer? (Examine only the first two periods of potential orders.)
A)$88.70
B)$47.74
C)$43.25
D)$50.83

The Default Rate of Demurrage Associates' New Customers Has Been