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(NPV of extending credit) The Salt Lake Ski Company wants to make a $200,000 credit purchase from your firm. Your investment in the credit sale is 70% of the amount of the sale. You estimate that Salt Lake has a 95% probability of paying you on time, which is in three months, and a 5% probability of paying nothing. If the opportunity cost of funds is 18% per year, what is the net present value of granting credit?.

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NPV of extending credit) The Salt Lake Ski Company wants to make a $200,000 credit purchase from your firm. Your investment in the credit sale is 70% of the amount of the sale. You estimate that Salt Lake has a 95% probability of paying you on time, which is in three months, and a 5% probability of paying nothing. If the opportunity cost of funds is 18% per year, what is the net present value of granting credit?

Posted on Aug 26, 2010

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