Szane Company, Paris, has received an order for 50,000 cartons of athletic shoes from Southampton Footware, Ltd.

Sézane Company, Paris, has received an order for 50,000 cartons of athletic shoes from Southampton Footware, Ltd. (SFL), England, payment to be in British pounds sterling.

The shoes will be shipped to SFL under the terms of a letter of credit issued by a London bank on behalf of SFL. The letter of credit specifies that the face value of the shipment, £400,000, will be paid 120 days after the London bank accepts a draft drawn by SFL in accordance with the terms of the letter of credit. The current discount rate in London on 120-day bankers’ acceptances is 12%

per annum, and SFL estimates its weighted average cost of capital to be 18% per annum. The commission for selling a banker's acceptance in the discount market is 2.0% of the face amount.

a. Would Sezane gain by holding the acceptance to maturity, as compared to discounting the bankers’

acceptance at once?

b. Does Sezane incur any other risks in this transaction?