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QUESTION 5 - WORKING CAPITAL MANAGEMENT All Local Restaurant Limited has three (3) possible suppliers, all of which offer different credit terms. Apart from the

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QUESTION 5 - WORKING CAPITAL MANAGEMENT All Local Restaurant Limited has three (3) possible suppliers, all of which offer different credit terms. Apart from the slight differences in credit terms, their products and services are virtually identical. The credit terms offered by these suppliers are shown in table shown on the next page. Supplier Credit Terms Supplier 1 3/10 net 30 Supplier 2 1/20 net 45 5/5 net 35 Assuming a 365-day year, answer the a. Identify and briefly describe TWO major sources of spontaneous short-term financing available to Total Local Restaurant (6 marks) b. Calculate the approximat mate cost of giving up the cash discount from each supplier (6 marks) c. If the firm can obtain short-term funds from its commercial bank at an annual interest rate of 20%, which if any, of the suppliers' cash discounts should the restaurant give up? Evaluate each supplier and provide a brief explanation to support your answer (5 marks) What impact, if any, will stretching the accounts payable (net period only) of supplier 3 by 15 days, have on your answer to part b with regards to supplier 3. (3 marks) 5

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