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The following scenario relates to the five questions (1620) below Background rinmn rn ic a multinational combanv which has been reviewing its working capital management.
The following scenario relates to the five questions (1620) below Background rinmn rn ic a multinational combanv which has been reviewing its working capital management. Cingo Co has received an offer of a discount for bulk purchase from Bens Co, one of its major suppliers. Bens Co has offered a 0.5% discount on orders of 60,000 units or more of Machine part W. Cingo Co currently consumes 240,000 units of Machine part W each year and places orders of 20,000 units at the end of each month. Holding cost for Machine part W is $1 per unit per year and ordering costs are $250 per order. Cingo Co does not maintain any buffer inventory of Machine part W. Genna Co, a major supplier of another Component M to Cingo Co, has offered a 1% early settlement discount for payment within 30 days. Cingo Co currently takes 72 days to settle outstanding invoices with Genna Co. Cingo Co has a cost of short-term finance of 6% through an overdraft and no surplus cash. Assume that there are 360 days in each year. Cingo Co currently has decentralised treasury operations, but is considering implementing a centralised treasury department. 17.Using months as a basis, what is the financial consequence of accepting the bulk purchase discount? A. Benefit of $8,000 per year B. Benefit of $12,000 per year C. Cost of $13,000 per year D. Cost of $8,000 per year
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