1. What credit decision is appropriate for a potential customer that offers an 80 percent chance of paying in one month on a $2,000 sale that has a present value of cost of $1,600 when the monthly interest rate is 1 percent?
Grant credit since expected profit is $317
Refuse credit since expected loss is $16
Grant credit since expected profit is $400
Refuse credit since expected loss is $400
Refuse credit since expected profit is zero
2. The operating cycle is the length of time from:
the purchase of raw materials to the payment for raw materials.
the firm's payment for materials and the date that it gets paid by customers.
the purchase of raw materials to the delivery of the finished product.
the payment of raw materials to the sale of finished goods.
the purchase of raw materials to the collection of cash from customers.