You Are Trying to Attract New Customers That You Feel

Multiple Choice

You are trying to attract new customers that you feel could become repeat customers. The average price of the items you sell is $93 with a $70 variable cost. Your monthly interest rate is 2.1 percent. Your experience tells you that 10 percent of these customers will never pay their bill. Should you offer credit terms of net 30 to attract these potential customers? Why or why not?

A) Yes; because the net present value of extending credit is $40.
B) Yes; because the net present value of extending credit is $916.
C) No; because the net present value of extending credit is -$1,025.
D) No; because the net present value of extending credit is -$59.
E) It doesn't matter; because the present value of extending credit is $0.