1. As a financial analyst at Presho , INc you are asked to determine whether credit should be extended to Fly By Nights, Inc. They have ordered $50,000 of products, which have a cost to your firm of $30, 000. Based upon your analysis of Fly By Nights, Inc., credit history, you estimate that probability of being paid is 50 percent. You do not expect them ever to order products from your firm again because you have been told that they have a one-time need for your products. Based upon expected cash flows, what is your decision?
2. Returning to the previous problem, a further analysis reveals that if Fly by Nights can remain in business for the next year, they will order $500,000 of similar products with similar costs in 1 year if and only you will help them through this year. Based upon expected cash flows only, what is your decision?