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On each non delinquent sale Cast Iron receives revenues with a present value of $1,240 and incurs costs with a present value of $1,090. Assume there is no possibility of repeat orders and that the probability of successful collection from the customer is p = .96.
a-1. What is the expected profit of granting credit? (A negative amount should be indicated by a minus sign. Do not round intermediate calculations. Round your answer to 2 decimal places.) Expected profit $ _____________ per sale
a-2. Should Cast Iron grant or refuse credit? Refuse Grant
b. What is the break-even probability of collection? (Enter your answer as a percent rounded to 1 decimal place.)
Break-even probability ________ %
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