Reference no: EM133102184
Question - ECM Manufacturing Company 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 the table.
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Supplier
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Credit Terms
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Supplier 1
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1/10 net 30 EOM
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Supplier 2
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2/20 net 75 EOM
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Supplier 3
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3/10 net 50 EOM
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Assuming a 365-day year, answer the following.
a. Identify and describe two major sources of spontaneous short-term financing available to ECM Manufacturing.
b. Calculate the approximate cost of giving up the cash discount from each supplier.
c. If the firm can obtain short-term funds from its commercial bank at 12% interest, which if any, of the suppliers' cash discounts should the firm give up? Evaluate each supplier separately and provide a brief explanation to support your answer.
d. What impact, if any, will "stretching" the accounts payable (net period only) of supplier 3 by 30 days, have on your answer to part b with regards to supplier 3.
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