4. 21.

Evaluating credit policy [LO 20.2] Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 125 units have been made by customers requesting credit.

The variable cost is $6 900 per unit and the credit price is $7 600 each.

Credit is extended for one period. The required return is 1.9 per cent per period. If Solar Engines extends credit, it expects that 30 per cent of the customers will be repeat customers and place the same order every period forever and the remaining customers will be one-time orders. Should credit be extended?