Currently re-evaluating your payables policy

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Reference no: EM131300452

You are currently re-evaluating your payables policy. Your current suppliers offer terms of 1.5/10, net 40 with a late payment fee of 1.5% per month. A supplier wanting your business is willing to offer terms of 2.5/5, net 60 with no stated late payment fee. Your annual borrowing rate is 18%. Assume a 365 day year.

a. How long should you delay payment given the terms of your current suppliers? Prove your answer by relating the annualized cost of the discount to your investment or borrowing rate.

b. How long should you delay payment given the terms of your competing suppliers? Prove your answer by relating the annualized cost of the discount to your investment or borrowing rate.

Reference no: EM131300452

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