Crisps has received an order for 10000 bags of potato chips from BigBag. Crisps

Question

Crisps has received an order for 10000 bags of potato chips from BigBag. Crisps views BigBag to be a one-time customer. Crisps sells its large bags of potato chips for $1.90 each, and calculates its internal cost for the product at $1.45 each.

Market research estimates that there is a 25% 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

amount of sales = 10,000*1.90 = 19,000

amount that BigBag is expected to pay = 0.25*19,000 = 4,750

NPV = 4750 - 10,000*1.45 = -9,750

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