Access Enterprises is vetting four possible suppliers of an important raw material used in its production process, all offering different credit terms. The products offered by each supplier are virtually identical. The following table shows the credit terms offered by these suppliers. Assume a 365-day year.
Supplier Terms
A 2/10 net 50
B 3/20 net 90
C 2/20 net 60
D 3/10 net 65
1. Calculate the interest rate associated with not taking the discount from each supplier. Round your answers to one decimal place.
Supplier Interest rate
A %
B %
C %
D %
2. If the firm needs short-term funds (which are currently available from its commercial bank at 11%) and if each of the suppliers is viewed separately, then which, if any, of the suppliers' cash discounts should the firm not take? A, B, C, or D?
3. Suppose that the firm could stretch its accounts payable to supplier A (net period only) by 20 days. How would this affect your answer in part (b) concerning this supplier? Should or should not?