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The credit terms for each of three suppliers are shown in the following table. (Note: Assume a 365-day year.) Supplier Credit Terms A 1/10 net
- The credit terms for each of three suppliers are shown in the following table. (Note: Assume a 365-day year.)
Supplier | Credit Terms |
A | 1/10 net 50 EOM |
B | 2/10 net 30 EOM |
C | 2/20 net 60 EOM |
- Determine the approximate cost of giving up the cash discount from each supplier.
- Assuming that the firm needs short-term financing, indicate whether it would be better to give up the cash discount or take the discount and borrow from a bank at 15% annual interest. Evaluate each supplier separately using your findings in part a.
- Now assume that the firm could stretch its accounts payable (net period only) by 20 days from supplier C. What impact, if any, would that have on your answer in part b relative to this supplier?
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