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(NPV of extending credit) Squires Sports Equipment Company is selling $4,000 of rubber mats to the Springfield Fitness Center. Squires will invest $3,400 in the sale. Squires has credit terms of 2/10, net 30. It estimates that Springfield has a 50% proba- bility of taking the discount and paying on day 10, a 40% probability of paying the net amount on day 30, and a 10% chance of defaulting. If Springfield Fitness defaults, Squires estimates that it will recover nothing. If the opportunity cost of funds is 12% compounded annually, what is the net present value of granting credit? Assume a 365- day year.

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92811909

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