Ashley’s Delivery Service is analyzing the credit terms of each of thr

Ashley’s Delivery Service is analyzing the credit terms of each of three suppliers, A, B, and C.

(a) Determine the approximate cost of giving up the cash discount (assume a 360-day year).
(b) Assuming the firm needs short-term financing, recommend whether or not the firm should give up the cash discount or borrow from the bank at 10 percent annual interest. Evaluate each supplier separately.

ANSWER

(a)

Even though Suppliers B and C appear to have different credit terms, the cost of giving up the discount is the same.
(b) The firm should borrow from the bank in all instances.