Should Berkshire Sports offer customer credit? What is probability of payment?
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?
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