Reference no: EM132752971
LMN Manufacturing Company Limited has three (3) possible suppliers, all of which offer different credit terms. Apart from the slight differences in credit terms, their products and services are virtually identical.
The credit terms offered by these suppliers are shown in the table below
Supplier Credit Terms
Supplier 1 1/10 net 30 EOM
Supplier 2 2/20 net 75 EOM
Supplier 3 3/10 net 50 EOM
Assuming a 365-day year
Problem 1: Identify and describe two major sources of spontaneous short-term financing available to LMN Manufacturing
Problem 2: Calculate the approximate cost of giving up the cash discount from each supplier
Problem 3: If the firm can obtain short-term funds from its commercial bank at 12% interest, which if any, of the suppliers' cash discounts should the firm give up? Evaluate each supplier separately, and provide a brief explanation to support your answer
Problem 4: What impact, if any, will "stretching" the accounts payable (net period only) of supplier 3 by 30 days, have on your answer to part b with regards to supplier 3.
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