What is terry expected profit under the proposed credit

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Question 1: The default rate of Demurrage Associates' new customers has been running at 10%. The average sale for each new customer amounts to $800, generating a profit of $100 and a 40% chance of a repeat order next year. The default rate on repeat orders is only 2%. If the interest rate is 9%, what is the expected profit from each new customer?

Question 2: Terry's Place is currently experiencing a bad debt ratio of 4%. Terry is convinced that, with looser credit controls, this ratio will increase to 8%; however, she expects sales to increase by 10% as a result. The cost of goods sold is 80% of the selling price. Per $100 of current sales, what is Terry's expected profit under the proposed credit standards?

Reference no: EM132544255

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