MGMT 3320 Chapter Notes - Chapter 8: Deflation, Eurocurrency, Futures Contract

• School: University of Guelph
• Department: Management
• Course: MGMT 3320
• Professor: Rachel Elliott

Document Summary

The best way to compare financing methods is with an annual interest rate. Largest provider of short-term credit is usually the manufacturer/seller of goods & services. Almost 50% of short-term financing is from accounts payable or trade credit. They are spontaneous sources of funds (growing as business expands or seasonal basis etc. ) Trade credit is extended for 30 or 60 days varying by industry: many suppliers of food (like ice-cream) only give 10 days to pay) A major variable in determining payment period is possible existence of cash discount. Allows for a reduction in price if payment is made within specified time period. The cost of forgoing the discount (2/10, net 30) where d% = discount % f(date) = final payment period d(date) = discount period. The effective annual cost of forgoing the cash discount. Ratio of where your accounts payable is compared to your accounts receiveable. Banks provide funds to finance seasonal needs, product-line expansions, long-term growth etc.