Problem 31-16 Credit policy The Branding Iron Company sells its irons for $67 apiece wholesale. Production cost is $57 per iron. There is a 18% chance that wholesaler Q will go bankrupt within the next eight months. Q orders 1,000 irons and asks for eight months' credit. Assume that the discount rate is 12% per year, there is no chance of a repeat order, and Q will pay either in full or not at all. a. Calculate the NPV of the order b. should you accept the order?
Problem 31-16 Credit policy The Branding Iron Company sells its irons for $67 apiece wholesale. Production cost is $57 per iron. There is a 18% chance that wholesaler Q will go bankrupt within the next eight months. Q orders 1,000 irons and asks for eight months' credit. Assume that the discount rate is 12% per year, there is no chance of a repeat order, and Q will pay either in full or not at all. a. Calculate the NPV of the order b. should you accept the order?
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:Problem 31-16 Credit policy The Branding Iron Company sells its irons for $67 apiece wholesale. Production
cost is $57 per iron. There is a 18% chance that wholesaler Q will go bankrupt within the next eight months. Q
orders 1,000 irons and asks for eight months' credit. Assume that the discount rate is 12% per year, there is no
chance of a repeat order, and Q will pay either in full or not at all.
a. Calculate the NPV of the order
b. should you accept the order?
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