3. Motoguzzie (A). Motoguzzie exports large-engine motorcycles (greater than 700

Question

3.

Motoguzzie (A). Motoguzzie exports large-engine motorcycles (greater than 700cc) to Australia and invoices its customers in US dollars. Sydney Wholesale Imports has purchased $3,000,000 of merchandise from Motoguzzie, with payment due in six months. The payment will be made with a banker’s acceptance issued by Charter Bank of Sydney at a fee of 1.75% per annum. Motoguzzie has a weighted average cost of capital of 10%. If Motoguzzie holds this acceptance to maturity, what is its annualized percentage all in cost?

4.

Motoguzzie (B). Assuming the facts in problem 1, Bank of America is now willing to buy Motoguzzie’s banker’s acceptance for a discount of 6% annum. What would be Motoguzzie’s annualized percentage all in cost of financing it $3,000,000 Australian receivable?

Explanation / Answer

Answer to Question A.) Face amount of banker's acceptance = 30,00,000 Less: Acceptance fee    -26250 (face valueX acceptance fee X (term/360)) Amount received by an Indian 29,73,750 Opportunity cost of capital@ Motoguzzie's WACC (amount received X WACC X 180/360) 148687.5 Annualised % all in cost (AIC) (acceptance fee +opp.cost) / (amount received) X 360/180 11.765% Answer to Question B.) Face amount of banker's acceptance = 30,00,000 Less: Acceptance fee    -26250 (face valueX acceptance fee X (term/360)) Less: Discount on sale of Acceptance -90000 Amount received by Motoguzzie 28,83,750 Annualised % all in cost (AIC) (acceptance fee +Discount) / (amount received) X 360/180 8.062%

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