C r edit Decision. The Branding Iron Company sells its irons for $50 apiece wholesale. Pro- duction

QUESTION

C r edit Decision. The Branding Iron Company sells its irons for $50 apiece wholesale. Pro- duction cost is $40 per iron. There is a 25 percent chance that a prospective customer will go bankrupt within the next half year. The customer orders 1,000 irons and asks for 6 months credit. Should you accept the order? Assume a 10 percent per year discount rate, no chance of a repeat order, and that the customer will pay either in full or not at all.
1. Analysis of whether to accept the or not depends on the difference in between cost and revenue figures from the order. Calculate the revenue=75%*1000*$50 =$37,500 Cost = $40*1000=$40,000 =$40,000 From the above it

can be seen that cost>revenue Cost-Revenue=$40,000-$37,500 = -$2,500 Hence we should not accept the order as costs are greter than revenues .

ANSWER:

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