Relating the annualized cost of the discount to investment

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You are currently re-evaluating your payables policy. Your current supplier offers 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.

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

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

-Based on an average invoice of $100,000, which supplier should you purchase from, i.e., which set of terms results in the minimum net present-value cost?

Reference no: EM132693194

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