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Early payment discount decisions Prairie Manufacturing has four possible suppliers, all of which offer different credit terms. Except for the differences in credit terms, their

Early payment discount decisions Prairie 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 suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit terms

J 1/5 net 30 EOM

K 2/20 net 80 EOM

L 1/15 net 60 EOM

M 3/10 net 90 EOM

a. Calculate the approximate cost of giving up the early payment discount from each supplier. b. If the firm needs short-term funds, which are currently available from its com-mercial bank at 9%, and if each of the suppliers is viewed separately, which, if any, of the suppliers early payment discounts should the firm give up? Explain why. c. Now assume that the firm could stretch by 30 days its accounts payable (net period only) from supplier M. What impact, if any, would that have on your answer in part b relative to this supplier?

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