Q1. A business requires approximately $100,000 to purchase stock for 180 days. The transaction is financed...

Q1.

A business requires approximately $100,000 to purchase stock for 180 days. The transaction is financed via a Commercial Bill facility. The market rate is currently 6.5%pa and expected to increase to 6.7%pa for the next rollover. The Bank involved in the transaction will charge an Acceptance Fee of 2%pa.

Using a timeline show the cash inflows and cash outflows.

Expert Solution

market return 6.7%pa for =6.7*180/360 assume for 360 days in a year.

= for180 days =3.35%

same in acceptance fees2%pa=2*180/360 assume for 360 days in a year.

= for 180 days=1%

cash inflow=share purchase*return for 180 days

= $100000*(3.35/100)

=$3350

cash outflow=share purchse*acceptence fees

=$100000*(1/100)

=$1000

net cash flow =cash inflow-cash outflow

=$3350-$1000

=$2350

jeff jeffy answered 2 years ago

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