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Should credit be granted to the following applicant or not? If credit is granted, we estimate a 50% chance of being paid in one month,
Should credit be granted to the following applicant or not? If credit is granted, we estimate a 50% chance of being paid in one month, a 30% chance of being paid in two months, and a 20% chance of being paid in three months (with necessary assistance being provided by a collection service). Invoice amount for our product: $1000 Variable costs for satisfying the order: $700 Credit department expenses during the second and third months if not paid in 1 month: $40/month Collection service expenses: 40% of every dollar collected by the service Cost of capital for our business: 12%
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