What probability of payment would be required for the seller to break even (have a zero...

What probability of payment would be required for the seller to break even (have a zero net present value from granting credit) on an item sold on credit for a price of $1050, has a required return of 15%, a collection period of 6 months, and requires an investment in the sale of $800? (Express your answer in decimal format (rather than as a percentage) and accurate to four decimal places.)

Solutions

Expert Solution

Assumed probability=	P

AR collection=	1050*P
PV of AR collection=	1050*P/(1+15%)^(6/12)

This PV should be equal to initial investment to break even

1050*P/(1+15%)^(6/12)=	800
P * 979.130048652329=	800
P=	800/979.130048652329
P=	0.8171

jeff jeffy answered 1 year ago

Next > < Previous

Related Solutions

What is break-even? How is break-even calculated? How is a break-even analysis used? What are the...

What is break-even? How is break-even calculated? How is a break-even analysis used? What are the risks if break-even is not analyzed carefully?

what break-even price is for a firm. At the break-even price, explain what the economic profits...

what break-even price is for a firm. At the break-even price, explain what the economic profits are for a firm. Would a firm continue to operate permanently at the break-even price? Define the key terms including break-even price and economic profits. Explain the implications of having zero economic profits in relation to alternative business ventures that the entrepreneur can pursue. Provide examples

3.1 Required: Calculate the following: 3.1.1 Break-even quantity. (4) 3.1.2 Break-even value using the marginal income...

3.1 Required: Calculate the following: 3.1.1 Break-even quantity. (4) 3.1.2 Break-even value using the marginal income ratio. (3) 3.1.3 Margin of safety (in terms of units). (3) 3.1.4 Expected total marginal income and net profit. (5) INFORMATION Sharpe Ltd manufactures calculators. The following information was extracted from the budget for the year ended 31 December 2017: Sales Selling price per calculator Variable production cost per unit Fixed production costs Variable selling and administrative costs per unit Fixed selling and administrative...

What is the purpose of break even Analysis?

how does the break-even point fit into this discussion? What is the break-even point? Why is...

how does the break-even point fit into this discussion? What is the break-even point? Why is it an important concept in managerial accounting? What are its uses?

a. How are contribution margin and break even related? b. What happens to break even point...

a. How are contribution margin and break even related? b. What happens to break even point if variable cost per unit changes, if fixed cost changes? c. Explain the degree of operating leverage and how it is related to a companies profit risk.

Q2. (a) WHAT IS BREAK - EVEN POINT? (b) EXPLAIN THE IMPORTANT MANAGERIAL USES OF BREAK-EVEN...

Q2. (a) WHAT IS BREAK - EVEN POINT? (b) EXPLAIN THE IMPORTANT MANAGERIAL USES OF BREAK-EVEN ANALYSIS.

What is the break-even point in unit sales?

Oslo Company prepared the following contribution format income statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units): Sales $ 90,000 Variable expenses 49,500 Contribution margin 40,500 Fixed expenses 33,210 Net operating income $ 7,290 What is the break-even point in unit sales?

1. What is a firm’s break-even price?

1. What is a firm’s break-even price?A) The minimum average total cost.B)The minimum average fixed cost.C)The minimum average variable cost.D) Any market price.2. In the short run, a firm will continue to sell its product as long as:A) it is making a positive profit.B) the price is greater than average total costs.C) the price is greater than average variable costs.D) its marginal cost is increasing.3. In the short run, fixed costs:A) are an important feature in a firm's decision to...

When would the sum of the break-even quantities for each of a company’s products not be...

When would the sum of the break-even quantities for each of a company’s products not be the break-even point for the company as a whole?

Subjects