Question
Repeat Customer Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 195 units have been made by customers requesting
Repeat Customer Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 195 units have been made by customers requesting credit. The variable cost is $12,000 per unit, and the credit price is $14,750 each. Credit is extended for one period. The required return is 2.1 percent per period. If Solar Engines extends credit, it expects that 20 percent of the customers will never pay their bill and the rest will become repeat customers who place the same order every period forever. Calculate the NPV of the decision to grant credit.
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