Banka Matata Ltd (BML) sells printer cartridges and does not extend credit to its customers. A study commissioned last month revealed that, by offering credit and keeping the price unchanged, BML can increase sales by 40 percent - all new credit customers - while half of the current sales will migrate to credit sales. The cost per unit, however, will increase on average by Shs. 100 reflecting the expenses associated with accounts receivable. The probability of a customer making a payment on a credit sale is 96 percent. Currently BML sells 10,000 cartridges at shs. 9600 per unit and the cost is shs 8600 per unit.
a) Should BML extend credit to its customers?
b) How much should the price change for the credit extension plan to break even?
c) How much should the probability of credit customer making repayment be for the credit extension plan to break even?