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Determine RSC should accept Futrell Ltd

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Relationship Sales Corp. (RSC) is reviewing the credit terms it receives from one of its suppliers and is considering the following proposal. Futrell Ltd. is offering RSC a volume discount of 3% for making purchases of $9,000,000 of its products at a time instead of RSC's current purchases of $1,500,000 per month. To store the additional inventory, RSC will need to rent more warehouse space, which will cost $15,000 per month (including insurance). Currently, each order costs RSC $24,500 in processing and shipping. The new larger orders will cost $45,000 for processing and shipping. (Assume inventory is drawn down to zero before each new order is received.) RSC's weighted average cost of capital is 10.5%, and it is subject to tax at a rate of 38%.

Problem 1: Determine whether RSC should accept Futrell Ltd.'s 3% volume discount proposal.

Reference no: EM132626726

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