Calculate the NPV of the decision to grant credit.
Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 105 units have been made by customers requesting credit. The variable cost is $8,400 per unit, and the credit price is $10,250 each. Credit is extended for one period. The required return is 1.2 percent per period and the probability of default is 15 percent. Assume the number of repeat customers is affected by the defaults. In other words, 30 percent of the customers who do not default are expected to be repeat customers. |
Calculate the NPV of the decision to grant credit. |
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