Problem:
Solar Engines manufactures solar engines for tractor-trailers. Given the fuel savings available, new orders for 140 units have been made by customers requesting credit. The variable cost is $9,800 per unit, and the credit price is $12,000 each. Credit is extended for one period. The required return is 1.9 percent per period and the probability of default is 10 percent. Assume the number of repeat customers is affected by the defaults. In other words, 40 percent of the customers who do not default are expected to be repeat customers.
Required:
Question: Calculate the NPV of the decision to grant credit.
Note: Please provide step by step solution.