Crisps has received an order for 13500 bags of potato chips from BigBag. Crisps

Question

Crisps has received an order for 13500 bags of potato chips from BigBag. Crisps views BigBag to be a one-time customer. Crisps sells its large bags of potato chips for $1.80 each, and calculates its internal cost for the product at $0.85 each.

Market research estimates that there is a 27% chance that BigBag will pay in full what it owes.
Based on this information, what is the NPV to Crisps of offering credit to BigBag?
$

Place your answer to the nearest dollar. Do not include a dollar sign or comma.

Explanation / Answer

Expected inflows = 13500*1.8*27% = 6561

Expected outflows = 13500*0.85 = 11475

Therefore, NPV = 6561 - 11475 = -4914 (NPV is negative)

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