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Company Z is currently selling widgets at $1,000,000 per unit, with a 75% variable cost. They're considering offering credit terms, allowing payments to be delayed
Company Z is currently selling widgets at $1,000,000 per unit, with a 75% variable cost. They're considering offering credit terms, allowing payments to be delayed by 30 days. If credit terms are extended, monthly sales will increase from 5 units (currently) to 6 units (after the credit term extension); however, by providing credit, company Z predicts a 2.25% customer default rate. At what monthly interest rate would company Z be indifferent between extending credit and continuing its current policy? Please show work
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