Question
The suppliers of a company provide cash discounts at 1/10, n/40. Other suppliers offer cash discounts of 3/10, n/40. Assuming the current market borrowing rate
The suppliers of a company provide cash discounts at 1/10, n/40. Other suppliers offer cash discounts of 3/10, n/40. Assuming the current market borrowing rate is 15%, which of the following decisions should the company take?
| The company should not avail itself of the cash discount as the scheme represents an opportunity cost of 12.29%, which is lower than the market borrowing rate. | |
| The company should avail itself of the cash discount as the scheme represents an opportunity cost of 37.63%, which is higher than the market borrowing rate. | |
| The company should make payments in 35 days to break even with the market rate of borrowing. | |
| The company should not avail itself of the cash discount as the scheme represents an opportunity cost of 37.63%, which is higher than the market borrowing rate.
|
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Risk Sensitive Investment Management
Authors: Mark H A Davis, Sébastien Lleo
1st Edition
9814578037, 978-9814578035
