Problem:
Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 105 units have been made by customers requesting credit. The variable cost is $8,400 per unit, and the credit price is $10,250 each. Credit is extended for one period. The required return is 1.2 percent per period. If Solar Engines extends credit, it expects that 20 percent of the customers will be repeat customers and place the same order every period forever and the remaining customers will be one-time orders.
Required:
Question: Calculate the NPV of the decision to grant credit?
Note: Provide support for rationale.