Dana Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences

Question:

Dana Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their products and services are virtually identical. The credit terms offered by these sup- pliers are shown in the following table. (Note: Assume a 365-day year.)

Supplier Credit terms

J...................1/10 net 30 EOM

K..................2/20 net 80 EOM

L..................1/20 net 60 EOM

M..................3/10 net 55 EOM

a. Calculate the approximate cost of giving up the cash discount from each supplier.

b. If the firm needs short-term funds, which are currently available from its commercial bank at 16 percent, and if each of the suppliers is viewed separately, which, if any, of the suppliers' cash discounts should the firm give up? Explain why.

c. What impact, if any, would the fact that the firm could stretch by 30 days its accounts payable (net period only) from supplier M have on your answer in part b relative to this supplier?

Accounts Payable
Accounts payable (AP) are bills to be paid as part of the normal course of business.This is a standard accounting term, one of the most common liabilities, which normally appears in the balance sheet listing of liabilities. Businesses receive...