Credit Policy Berkshire Sports, Inc., operates a mail-order running shoe business. Management is considering dropping its policy

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Credit Policy Berkshire Sports, Inc., operates a mail-order running shoe business. Management is considering dropping its policy of no credit. The credit policy under consideration is this:

Current Policy New Policy Price per unit $ 35 $ 40 Cost per unit $ 25 $ 32 Quantity sold 2,000 3,000 Probability of payment 100% 85%

Credit period 0 1

a. If the interest rate is 3 percent per period, should the company offer credit to its customers?

b. What must the probability of payment be before the company would adopt the policy?

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