Air Spares is a wholesaler that stocks engine components and test equipment for the commercial aircraft industry. A new customer has placed an order for eight high-bypass turbine engines, which increase fuel economy. The variable cost is $1.7 million per unit, and the credit price is $2.055 million each. Credit is extended for one period, and based on historical experience, payment for about 1 out of every 125 such orders is never collected. The required return is 2.0 percent per period.
Required:
1. What is the NPV per engine purchased on credit? (Do not round intermediate calculations. Enter your answer in dollars, not millions of dollars, e.g., 1,234,567. Round your answer to 2 decimal places, e.g., 32.16.) 2. Assuming that this is a one-time order, should it be filled? The customer will not buy if credit is not extended. Yes No ?3. What is the break-even probability of default in part (a)? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
