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# Customer Credit problems

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Berkshire Sports, Inc., operates a mail-order running-shoe business. Management is considering dropping its policy of no credit. The credit policy under consideration by Berkshire follows:

No Credit Credit
Price per unit \$35 \$40
Cost per unit \$25 \$32
Quantity sold 2,000 3,000
Probability of payment 100% 85%
Credit period 0 1
Discount rate 0 3

a. Should Berkshire offer credit to its customers?
b. What must the probability of payment be before Berkshire would adopt the policy?

#### Solution Preview

a. Revenue with no Credit:
Total profit per unit = 35-25 = 10
Total Revenue = 10 * ...

#### Solution Summary

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