Credit Policy Evaluation Consider the information in the following table about two alternative credit strategies.

The higher cost per unit reflects the expense associated with credit orders, and the higher price per unit reflects the existence of a cash discount. The credit period will be 90 days, and the cost of debt is 0.75 per cent per month.

Based on this information Refuse credit Grant credit Price per unit (£) 51 55 Cost per unit (£) 29 31 Quantity sold per quarter 3,300 3,500 Probability of payment 1.0 0.9

(a) Calculate the cash discount and the default probability.

Should credit be granted?

(b) What does the credit price per unit have to be to break even?