A company estimates its cost of vendor financing (using its vendor as its banker

Question

A company estimates its cost of vendor financing (using its vendor as its banker) is 12.2%. It also estimates its effective cost of bank financing to be 9.1%. Which statement best describes this situation?

a. Can't say for sure what the better funding source would be. b. The vendor offers less expensive financing and should be used instead of the bank for that reason. c. The company should use its vendor as its financing source, not its bank. d. The company should borrow from its bank and take advantage of the trade discount being offered.

Explanation / Answer

D

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