The default rate of Don's new customers has been running at 25 percent. The average sale for each new customer amounts to $750, generating a present value of profit of $300 and a 25 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 5 percent, what is the expected profit from each new customer? $178.13 O $243.75 $161.72 O$159.38
The default rate of Don's new customers has been running at 25 percent. The average sale for each new customer amounts to $750, generating a present value of profit of $300 and a 25 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 5 percent, what is the expected profit from each new customer? $178.13 O $243.75 $161.72 O$159.38
Chapter13: Other Financing Alternatives
Section: Chapter Questions
Problem 1bM
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![The default rate of Don's new customers has been running at 25 percent. The average sale for each new customer amounts to $750,
generating a present value of profit of $300 and a 25 percent chance of a second order next year. The default rate on second orders is only 5
percent. If the interest rate is 5 percent, what is the expected profit from each new customer?
O $178.13
O $243.75
O $161.72
O $159.38](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa5af2bbd-4a24-43f8-b083-66c7a18315bb%2Fed812224-4475-4018-87d2-d847fb5451ed%2Fxxfznah_processed.png&w=3840&q=75)
Transcribed Image Text:The default rate of Don's new customers has been running at 25 percent. The average sale for each new customer amounts to $750,
generating a present value of profit of $300 and a 25 percent chance of a second order next year. The default rate on second orders is only 5
percent. If the interest rate is 5 percent, what is the expected profit from each new customer?
O $178.13
O $243.75
O $161.72
O $159.38
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