Computation of probability of payment

Reference no: EM1312622

Rockwell Heating is selling a commercial heating unit at the price of $100,000 per unit. The variable cost of producing this unit is $75,000. Rockwell is considering offering credit terms to their customers, which would allow payment to be delayed one month. Rockwell predicts that offering these terms will increase monthly sales from 50 units to 60 units. Rockwell does not expect the increased production to change variable cost and Rockwell does not expect to charge a higher price. The appropriate discount rate is 1% a month. Determine the probability of payment that would make Rockwell indifferent between granting credit and the present policy. Show all your work and answer.

Reference no: EM1312622

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