Question

Hello sir, I have done this question in two ways. Please guide me which one is correct.

Product Q
The annual demand for Product Q is 456,000 units per year and Plot Co buys in this product at $1 per unit on 60 days credit. The supplier has offered an early settlement discount of 1% for settlement of invoices within 30 days
Plot finances working capital with short term finance for 5% per year. Assume 365 days.

(b) Calculate the net value in dollars to Piot Co of accepting the early settlement discount for Product Q.

Solution 1: Assuming the rate as deposit rate (5%). We will invest the amount till the payment date (30 days more than discount repayment day).

If Accept Discount
Outflow= 456000*0.99=451440
Interest Income = 0
Total Costs = 451440

If reject discount
Outflow = 456000
Interest income= 456000*5%*30/365= 1855
Total Costs = 454126
Net Saving if accepted Discount= 2686

Solution 2: Assuming the rate as borrowing rate (5%). We borrow more finance to entertain the days we paid early (30 days earlier the credit term limit).
If Accept Discount
Outflow= 456000*0.99=451440
Interest Expense = 1855
Total Costs = 453295

If reject discount
Outflow = 456000
Interest expense=0
Total Costs = 456000
Net Saving if accepted Discount= 2705

Please help.