A study of accounts receivables at the A&W Department Store indicates that bills are either current, one month overdue, written off as bad debts, or paid in full. Of those that are current, 80% are paid that month, and the rest become one month overdue. Of the one month overdue bills, 90% are paid, and the rest become two months overdue. Those that are two months overdue will either be paid (85%) or be listed as bad debts. If the sales each month average $150,000, determine how much the company expects to receive of this amount.

a.) how much will become bad debts?

b.) how would the paid category and the bad debt category change with the following matrix of transition probabilities?

P= 1 0 0

0 1 0 0

0.7 0 0.2 0.1

0.4 0.2 0.2 0.2