Reference no: EM132885437

Consider the case of the Cast Iron Company. On each nondelinquent sale, Cast Iron receives revenues with a present value of $1,240 and incurs costs with a present value of $1,000. Cast Iron's costs have increased from $1,000 to $1,090. Assuming that there is no possibility of repeat orders and that the probability of successful collection from the customer is p = 0.96, answer the following.

Problem a-1. What is the expected profit of granting credit? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.)

Problem a-2. Should Cast Iron grant or refuse credit?

Problem b. What is the break-even probability of collection? (Enter your answer as a percent rounded to 1 decimal place.)