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A retailing company believes it can sell 4 million of its main product within the upcoming financial year. The inventory manager plans to order its main product forty times over the next year. The carrying cost is $0.03 per product per year. The order cost is $600 per order. Calculate the following: i)        The annual carrying costs ECM 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 table shown on the next page. 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, answer the following. d. 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. Ans for supplier 3 was: Supplier 3 = [(0.03 / (1-0.03))] x [(365 / (50-10))] = 0.0309 x 9.125 = 28.21%

A retailing company believes it can sell 4 million of its main product within the upcoming financial year. The inventory manager plans to order its main product forty times over the next year. The carrying cost is $0.03 per product per year. The order cost is $600 per order. Calculate the following: i)        The annual carrying costs ECM 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 table shown on the next page. 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, answer the following. d. 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. Ans for supplier 3 was: Supplier 3 = [(0.03 / (1-0.03))] x [(365 / (50-10))] = 0.0309 x 9.125 = 28.21%

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 13P
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A retailing company believes it can sell 4 million of its main product within the upcoming financial year. The inventory manager plans to order its main product forty times over the next year. The carrying cost is $0.03 per product per year. The order cost is $600 per order. Calculate the following: i)        The annual carrying costs ECM 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 table shown on the next page. 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, answer the following. d. 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. Ans for supplier 3 was: Supplier 3 = [(0.03 / (1-0.03))] x [(365 / (50-10))] = 0.0309 x 9.125 = 28.21%
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