Problems

1 For each of the following import purchases, (a) calculate the annual cost of the cash dis count forgone, and (b) determine the date and amount paid if the discount is taken. Assume that the invoice date is March 10 and that there are 30 days in a month.

2 An exporter has a $20,000 bankers' acceptance for 6 months, the acceptance fee is 2

percent per year, and the discount rate on this bankers' acceptance is 10 percent per year.

(a) How much cash will the exporter receive if it holds the bankers' acceptance until maturity?

(b) How much cash will the exporter receive if it sells the bankers' acceptance at a 10 percent discount rate?

(c) The exporter's opportunity cost of funds is 10.2 percent per year. If the exporter wishes to maximize the present value of her bankers' acceptance, should she discount the bankers' acceptance or hold it until maturity?

3 An exporter has recently factored its accounts receivable at a rate of $10,000 a month.

The factor advances 80 percent of the receivables, charges 1 percent interest per month on advances, and charges a 3 percent factoring fee. The interest and fee are paid on a discount basis.

(a) Determine the net proceeds to the exporter.

(b) Determine the effective annual cost of this financing arrangement.

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