Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for

image text in transcribed

Air Spares 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-bypass turbine engines, which increase fuel economy. The variable cost is $2.8 million per unit, and the credit price is $2.965 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 3.4 percent per period. a-1 What is the NPV per engine purchased on credit? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.) NPV per unit a-2 Assuming that this is a one-time order, should it be filled? The customer will not buy if credit is not extended O Yes O No b. What is the break-even probability of default in part (a)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Break-even probability c-1 Suppose that customers who don't default become repeat customers and place the same order every period forever. Further assume that repeat customers never default. What is the NPV per engine purchased on credit? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.) NPV per unit c-2 Assuming the customer becomes a repeat customer, what is the break-even probability of default? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Break-even probability

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

The Palgrave Handbook Of Technological Finance

Authors: Raghavendra Rau, Robert Wardrop, Luigi Zingales

1st Edition

3030651169, 978-3030651169

More Books

Students also viewed these Finance questions

Question

Design a job advertisement.

Answered: 1 week ago