Frank\'s Formals rents apparel throughout the year. They have experienced non-pa

Question

Frank's Formals rents apparel throughout the year. They have experienced non-payment by about 15% of their customers with an average loss of $400. Frank's wants to stem their losses by using an instant electronic credit check on the customer. These checks will cost them $15 on each of the 1,000 customers. The opportunity cost is 2.0% for the credit period. Should they pursue the credit check?

No, because the $15,000 cost is too high. No, because a $400 loss is minor. Yes, because the net gain is $30,000. Yes, because the net gain is $45,000. Yes, because the net gain is $60,000.

Explanation / Answer

Cost of credit check = $15 per 1000 customer + 2%

Net gain can not be calculated as complete info is not given. Therefore correct option would be:

No, because a $400 loss is minor.

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