Credit Policy The Cold Fusion Corp. (manufacturer of the Mr. Fusion home power plant) is considering a new credit policy. The current policy is cash only. The new policy would involve extending credit for one period. a. Based on the following information, determine if a switch is advisable. The interest rate is 2 percent per period:

Credit Where Credit Is Due You are trying to decide whether or not to extend credit to a particular customer. Your variable cost is $15 per unit; the selling price is $22. This customer wants to buy 1,000 units today and pay in 30 days. You think there is a 15 percent chance of default. The required return is 3 percent per 30 days. a. Should you extend credit? Assume that this is a one-time sale and that the customer will not buy if credit is not extended.