United Sports is considering bidding to sell ($100,000) of ski equipment to Phang Family Enterprises of Seoul,

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United Sports is considering bidding to sell \($100,000\) of ski equipment to Phang Family Enterprises of Seoul, South Korea. Payment would be due in six months. Since United Sports cannot find good credit information on Phang, United Sports wants to protect its credit risk. It is considering the following financing solution.

Phang’s bank issues a letter of credit on behalf of Phang and agrees to accept United Sports’s draft for \($100,000\) due in six months. The acceptance fee would cost United Sports \($500,\) plus reduce Phang’s available credit line by \($100,000.\) The bankers’ acceptance note of \($100,000\) would be sold at a 2% per annum discount in the money market. What is the annualized percentage all-in cost to United Sports of this bankers’ acceptance financing?

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Multinational Business Finance

ISBN: 9781292445960

16th Global Edition

Authors: David Eiteman, Arthur Stonehill, Michael Moffett

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