Pipe Manufacturing Company (PMC) is debating whether to extend Credit to a particular customer. PMC's products, primarily used in the manufactured assembly of Motor Vehicles, currently sell for sh. 1,850 per unit. The variable cost is sh. 1,200 per unit. The order under consideration is 12 units today; payment is promised in 30 days. Required:- (i) If there is a 20% chance of default, should PMC fill the order? The required return is 2% per month. This is a One-Time Sale, and the customer will not buy if credit is not extended. (ii) In general terms, how do you think your answer in Part (a) will be affected if the customer will purchase the Merchandise for cash if the credit is refused? The Cash Price is sh. 1,750 per unit.
Pipe Manufacturing Company (PMC) is debating whether to extend Credit to a particular customer. PMC's products, primarily used in the manufactured assembly of Motor Vehicles, currently sell for sh. 1,850 per unit. The variable cost is sh. 1,200 per unit. The order under consideration is 12 units today; payment is promised in 30 days. Required:- (i) If there is a 20% chance of default, should PMC fill the order? The required return is 2% per month. This is a One-Time Sale, and the customer will not buy if credit is not extended. (ii) In general terms, how do you think your answer in Part (a) will be affected if the customer will purchase the Merchandise for cash if the credit is refused? The Cash Price is sh. 1,750 per unit.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Pipe Manufacturing Company (PMC) is debating whether to extend Credit to a particular customer. PMC's products, primarily used in the manufactured
assembly of Motor Vehicles, currently sell for sh. 1,850 per unit. The variable cost is sh. 1,200 per unit. The order under consideration is 12 units today;
payment is promised in 30 days.
Required:-
(i) If there is a 20% chance of default, should PMC fill the order? The required return is 2% per month. This is a One-Time Sale, and the customer will not buy
if credit is not extended.
(ii) In general terms, how do you think your answer in Part (a) will be affected if the customer will purchase the Merchandise for cash if the credit is refused?
The Cash Price is sh. 1,750 per unit.
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