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.
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Supplier
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Credit Teams
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A
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1/10 net 40
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B
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2/20 net 90
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C
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1/20 net 60
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D
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3/10 net 75
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a. Calculate the interest rate associated with not taking the discount from each supplier.
b. If the firm needs short-term funds, which are currently available from its commercial bank at 11 percent, and if each of the suppliers is viewed separately, which, if any, of the suppliers' cash discounts should the firm not take? Explain why.
c. What impact, if any, would the fact that the firm could stretch its accounts payable (net period only) by 20 days from supplier A have on your answer in part (b) relative to this supplier?