A company which has no borrowings, running purely on capital and retained earnings, wants to make a new purchase order for some goods, for trading purpose. They have 2 options:
1. Make cash purchase from a supplier @ 9.000/unit. They could sell it @ 9.700 per unit.
2. Make a 3 month credit purchase from another supplier, @ 9.500 per unit and sell it @ 10.500 per unit.
The market demand and quality of both the products are same.
The company is making credit sales on all its products and the average collection period is 4 months.
Which of the above purchase is more profitable to the company, considering only the financial aspects???? Which is the best approach to solve this problem?
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