Credit Analysis. Use the data in Example 3. Now suppose, however, that 10 percent of Cast Irons
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Credit Analysis. Use the data in Example 3. Now suppose, however, that 10 percent of Cast Iron’s customers are slow payers, and that slow payers have a probability of 30 percent of defaulting on their bills. If it costs $5 to determine whether a customer has been a prompt or slow payer in the past, should Cast Iron undertake such a check? Hint: What is the expected savings from the credit check? It will depend on both the probability of uncovering a slow payer and the savings from denying these payers credit.
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Study Guide To Accompany Fundamentals Of Corporate Finance
ISBN: 9780073012421
5th Edition
Authors: Richard Brealey, Stewart Myers, Alan Marcus
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