Locust Software sells computer training packages to its business customers at a price of $104. The cost of production (in present value terms) is $97. Locust sells its packages on terms of net 30 and estimates that about 5% of all orders will be uncollectible. An order comes in for 30 units. The interest rate is 4% per month.
a-1.Calculate the profit or loss if the sale will not be made unless credit is extended. (Input the amount as a positive value. Do not round intermediate calculations.)
$
a-2.Should the firm extend credit if this is a one-time order?
b.What is the break-even probability of collection?
Break-even probability %
c-1.Calculate the present value of the sale. (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Present value $
c-2. Should credit be extended?
d.What is the break-even probability of collection in the repeat-sales case? (Round your answer to 2 decimal places.)
Break-even probability %
