You Have the Opportunity to Make a One-Time Sale If

Multiple Choice

You have the opportunity to make a one-time sale if you will give a new customer 30 days to pay. You suspect that there is a 40 percent chance that this person will never pay you. The sales price of the item the customer wants to buy is $249. Your variable cost on that item is $174 and your monthly interest rate is 1.5 percent. Should you grant credit to this customer? Why or why not?

A) Yes; because the net present value of the potential sale is $75.
B) Yes; because the net present value of the potential sale is $249.
C) No; because the net present value of the potential sale is -$27.
D) No; because the net present value of the potential sale is -$174.
E) It doesn't matter; because the NPV of the potential sale is zero.