Problem $20-23$ Credit Decision$/$Repeat Sales $($LO$5)$ Surf City sells its network browsing software for $$43$ per copy to computer software distributors and allows its customers $1$ month to

pay their bills. The cost of the software is $$28$ per copy. The industry is very new and unsettled, however, and the probability that a

new customer granted credit will go bankrupt within the next month is $25\%.$ The firm is considering switching to a cash$-$on$-$delivery

credit policy to reduce its exposure to defaults on trade credit. The discount rate is $1\%$ per month.

Required:

a$-1.$ What is the present value of the expected profit under the current credit policy?

a$-2.$ What is the expected profit under the cash$-$on$-$delivery policy? If the firm switches policies, sales will fall by $45\%.$

b$-1.$ What would be the present value of the expected profit if a customer that is granted credit and pays its bills can be expected to

generate repeat orders with negligible likelihood of default for each of the next $6$ months? Similarly, customers that pay cash also will

generate on average $6$ months of repeat sales.

b$-2.$ What would be the present value of the expected profits under the cash$-$on$-$delivery policy, given the sales information from $($b$-1)?$

Complete this question by entering your answers in the tabs below.

b$-1.$ What would be the present value of the expected profit if a customer that is granted credit and pays its bills can be

expected to generate repeat orders with negligible likelihood of default for each of the next $6$ months? Similarly, customers

that pay cash also will generate on average $6$ months of repeat sales.

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

$b-2.$ What would be the present value of the expected profits under the cash$-$on$-$delivery policy, given the sales information

from $($b$-1)?$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

b$-1.$ Present value of expected profit

b$-2.$ Present value of expected profit

Surf City sells its network browsing software for $$43$ per copy to computer software distributors and allows its customers $1$ month to

pay their bills. The cost of the software is $$28$ per copy. The industry is very new and unsettled, however, and the probability that a

new customer granted credit will go bankrupt within the next month is $25\%.$ The firm is considering switching to a cash$-$on$-$delivery

credit policy to reduce its exposure to defaults on trade credit. The discount rate is $1\%$ per month.

Required:

a$-1.$ What is the present value of the expected profit under the current credit policy?

a$-2.$ What is the expected profit under the cash$-$on$-$delivery policy? If the firm switches policies, sales will fall by $45\%.$

b$-1.$ What would be the present value of the expected profit if a customer that is granted credit and pays its bills can be expected to

generate repeat orders with negligible likelihood of default for each of the next $6$ months? Similarly, customers that pay cash also will

generate on average $6$ months of repeat sales.

b$-2.$ What would be the present value of the expected profits under the cash$-$on$-$delivery policy, given the sales information from $($b$-1)?$

Complete this question by entering your answers in the tabs below.

Req A$1$ and A$2$ Req B$1$ and B$2$

a$-1.$ What is the present value of the expected profit under the current credit policy?

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.

a$-2.$ What is the expected profit under the cash$-$on$-$delivery policy? If the firm switches policies, sales will fall by $45\%.$

Note: Do not round intermediate calculations. Round your answer to $2$ decimal places.