Compute probability of the payment

Reference no: EM1359110

Berkshire Sports, Inc., operates a mail-order running-shoe business. Management is considering dropping its policy of no credit. The credit policy under consideration by Berkshire follows:

No Credit Credit
Price per unit--- $35 $40
Cost per unit--- $25 $32
Quantity sold--- 2000 3000
Probability of payment-- 100% 85%
Credit period--- 0 1
Discount rate---- 0 3%

A. Should Berkshire offer credit to its customers?
B. What must the probability of the payment be before Berkshire would adopt the policy?

Reference no: EM1359110

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