A firm is considering two alternative credit strategies:

	All Cash	Credit
Price per unit	$50	$55
Cost per unit	$25	$27
Quantity Sold	6,000	6,700
Payment Probability	100%	92%

If the firm decides to grant credit to customers the Days to Collect will be 60 days. During that time the firm will have to borrow $100,000 on average, at a rate of 1% per month.

a). Should the firm grant credit? (Use calculations to support your answer).

b). The firm is considering using a credit agency to identify customer that will not pay and will drop the quantity sold to 6,500 units. The credit agency will charge an initial $1,500 fee and then $2.00 for every credit check after that. If the agency can identify all customers that will not pay should the firm use the credit agency?