Air spaces is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high by bass turbine engines, which increase fuel economy. The variable cost is $2.6million per unit, and the credit price is $2.815 million each. Credit is extended for one period, and based on historical experience, payment for about 1 out of every 200 such orders is never collected. The required return is 2.9 per cent per period.

a) assuming that this is a one time order, should it be filled? The customers will not buy if credit is not extended.

b) What is the break even probability of part a

c) Suppose that customers who do not default become repeat customers and place the same order every period forever. Further assume that repeat customers never default. Should the order be filled? What is the break even probability of the default.

Please show working