13. Collegiate Tuxedo rents apparel throughout the year. They have experienced n

Question

13. Collegiate Tuxedo rents apparel throughout the year. They have experienced non-payment by
about 15% of their customers with an average loss of $200. Collegiate wants to stem their losses
by using an instant electronic credit check on the customer. These checks will cost them $7 on
each of the 1,000 customers. The opportunity cost is 1.5% for the credit period. Should they
pursue the credit check?
A. No, because the $7000 cost is too high.
B. No, because a $200 loss is minor.
C. Yes, because the net gain is $30,000.
D. Yes, because the net gain is $23,000.
E. Yes, because the net gain is $193,000.

Explanation / Answer

D. Yes, because the net gain is $23,000.

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