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Surf City sells its network browsing software for $14 per copy to computer software distributors and allows its customers 1 month to pay their bills.
Surf City sells its network browsing software for $14 per copy to computer software distributors and allows its customers 1 month to pay their bills. The cost of the software is $8 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 15%. 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 3% per month. a. Should the firm switch to a cash-on-delivery policy? If it does so, its sales will fall by 35% (Click to select) b. How would your answer change if a customer that is granted credit pays its bills, and is 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. The most preferable strategy is (Click to select)
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