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.)

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 2 years ago

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