Question
In: Finance
Air spaces is a wholesaler that stocks engine components and test equipment for the commercial aircraft...
Air spaces is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high by bass turbine engines, which increase fuel economy. The variable cost is $2.6million per unit, and the credit price is $2.815 million each. Credit is extended for one period, and based on historical experience, payment for about 1 out of every 200 such orders is never collected. The required return is 2.9 per cent per period.
a) assuming that this is a one time order, should it be filled? The customers will not buy if credit is not extended.
b) What is the break even probability of part a
c) Suppose that customers who do not default become repeat customers and place the same order every period forever. Further assume that repeat customers never default. Should the order be filled? What is the break even probability of the default.
Please show working
Solutions
jeff jeffy answered 1 year agoRelated Solutions
Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft...
Air Spares is a wholesaler that stocks engine components and
test equipment for the commercial aircraft industry. A new customer
has placed an order for eight high-bypass turbine engines, which
increase fuel economy. The variable cost is $2.5 million per unit
and the credit price is $2.815 million each. Credit is extended for
one period and based on historical experience, payment for about 1
out of every 100 such orders is never collected. The required
return is 3.1 percent per...
Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft...
Air Spares is a wholesaler that stocks engine components and
test equipment for the commercial aircraft industry. A new customer
has placed an order for eight high-bypass turbine engines, which is
fuel economy. The variable cost is 1.6 million per unit, and the
credit price is 1.725 million each. Credit is extended for one
period, and based on historical experience, payment for about 1 out
of 200 such orders is never collected. The required rate of return
is 1.8 percent...
Evaluating Credit Policy [L02] Air Spares is a wholesaler that stocks engine components and test equipment...
Evaluating Credit Policy [L02] Air Spares is a wholesaler that
stocks engine components and test equipment for the commercial
aircraft industry. A new customer has placed an order for eight
high-bypass turbine engines, which increase fuel economy. The
variable cost is 1.6 million per unit, and the credit price is
1.725 million each. Credit is extended for one period, and based on
historical experience, payment for about 1 out of every 200 such
orders is never collected. The required return...
Archer Company is a wholesaler of custom-built air-conditioning units for commercial buildings. It gathered the following...
Archer Company is a wholesaler of custom-built air-conditioning
units for commercial buildings. It gathered the following monthly
data relating to units shipped and total shipping expense:
Month
Units Shipped
Total Shipping Expense
January
30
$
1,800
February
60
$
2,300
March
40
$
1,700
April
50
$
2,000
May
70
$
2,300
June
80
$
2,700
July
20
$
1,200
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