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Ace, Inc. is evaluating the following 2 inventory systems. A supplier has offered a discount for buying larger inventory quantities on shorter credit terms. The

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Ace, Inc. is evaluating the following 2 inventory systems. A supplier has offered a discount for buying larger inventory quantities on shorter credit terms. The analysis follows: Present System Delivered At Order Number Order Quantity Inventory Cost Payment Due Att - PVF PV 1 0 $1,500,000 30 0.991847826 $1,487,772 30,000 30,000 2 40 $1,500,000 70 0.981182796 $1,471,774 3 80 30,000 $1,500,000 110 0.970744681 $1,456,117 120 0.968169761 $43,568 ORDERING COSTS HOLDING COSTS $45,000 $60,000 120 0.968169761 $58,090 $4,517,321 Proposed System Order Delivered At Number Order Quantity Inventory Cost Payment Due Att - PVF PV 1 0 45,000 0.99863 2011 $2,201,984 2 60 45,000 65 0.982503365 $2,205,000 $2,205,000 $30,000 $90,000 $2,166,420 $29,045 ORDERING COSTS 120 0.968169761 HOLDING COSTS 120 0.968169761 $87,135 $4,484,584 Based on the data presented, it is fair to say that: The quantity discount more than offsets the shorter DSO and higher holding costs We should forgo the discount since we are better off keeping our cash longer

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