Smith Corp

Essay

Smith Corp. produces a product that generates repeat orders on an annual basis. The product has a current price of $2,500 and a current cost of $2,100. The company uses a 15% opportunity cost of capital. Due to the product's high cost, there is a 17% chance that each new customer will default on payment. If the customer does not default, then business from that customer forms an infinite annuity income stream. What is the expected profit from granting credit to a new customer under these conditions?