ABC Corp. makes its purchases on terms of 1.5/15, net 50. A review of the firm's records has revealed that payments are usually made 30 days after the purchases are received. When asked why the firm does not take advantage of the discount, the bookkeeper replied that the cost of the foregone discount is only 1.5%, whereas a bank loan would cost the firm 9%.

a) Briefly explain what logical mistake the bookkeeper is making

b) If ABC can borrow from the bank, indicate whether it should take advantage of the discount.

Your company purchases its raw materials from two different suppliers. The purchases from the first supplier represent less than 5% of the supplier's total sales. In contrast, the purchases from the second supplier represent greater than 85% of the supplier's total sales. Both suppliers currently offer your company credit terms of 2/10, net 30. However, given recent liquidity problems, your company has decided to approach the second supplier with the intent of renegotiating its credit terms.

a) Identify the basic ethical issue your company faces by deciding to renegotiate the terms with only the second supplier.