What category should the company sell to

Reference no: EM13299477

A company has detected that it can divide its customers into 4 groups depending on how they pay their debts. The opportunity cost of money is 5%. The groups are:

Category 1 Credit loss 2% Pay-back time (days) 15
Category 2 Credit loss 6% Pay-back time (days) 27
Category 3 Credit loss 14% Pay-back time (days) 38
Category 4 Credit loss 20% Pay-back time (days) 67

a.) Calculate the expected profit for each category assuming that sales is 5 200. The costs for this size sale is $4 500. The costs occur in the beginning of the year. What category should the company sell to?

b.) The assessment of a new clients credit costs $56 and the customers divide into the categories equally. Is it clever to do an assessment of credit at the sales level of $5 200? At what sales level could it be done?

Reference no: EM13299477

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