Discount cash flow approach to the optimal producing policy of the EPQ model under trade credit

Abstract

This paper extends an EOQ model to consider the optimum production quantity of the EPQ model that is not only dependent on the inventory policy but also on firms’ credit policy. Here, the conditions of using a discounted cash-flows (DCF) approach and trade credit depending on the quantity produced are discussed. We consider that if the production quantity is less than at which the delay in payments is permitted, the payment for the item must be made immediately. Otherwise, the fixed trade credit period is permitted. This paper incorporates all concepts of a discounted cash-flows (DCF) approach, trade credit and the quantity production inventory to generalize the EOQ model.)