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Question:

The banks of Australian and Canadian companies that purchase electronic tools from HighTech provides letters of credit and are required to conduct payment within 180 days after the goods have been shipped to them. Therefore, the banks issue bankers acceptances to HighTech's bank. There are currently two bankers acceptances that HighTech can request his bank to discount: Bankers acceptance one is from Canada. It's maturity value is $1,500,000 and it will mature in 45 days. The bankers acceptance commission is 1.35% and the market rate is 1.50%. The other bankers acceptance is from Australia. It's maturity value is $3000,000 and it will mature in 120 days. The bankers acceptance commission is 0.95% and the market rate is 1.25%. The CEO mentions that HighTech's pays an average of 1.1% on existing loans. He requires information of whether it is viable to discount any of the bankers acceptances or not. Calculate the bond equivalent rate that HighTech will receive for each of the bonds when they are discounted and compare it to the average cost of HighTech's debt to determine whether any of the bankers acceptances should be discounted.

Calculate the value of the Canadian bankers acceptance at maturity by applying the correct formula in the space below: (2 marks)

Calculate the discounted value of the Canadian bankers acceptance at maturity by applying the correct formula in the space below: (2 marks)

Calculate the bond equivalent rate of the Canadian bankers acceptance by applying the correct formula in the space below: (2 marks)

Should the Canadian bankers acceptance be discounted if you compare it to the average cost of existing loans to HighTech? Provide one reason for your answer in the space below: (1 mark)

Observation Salary Position Experience 1 $ 53,938.00 Finance 2 to 5 years 2 $ 52,694.00 Finance 2 to 5 years 3 $70,515.00 Non-Finance 4 $ 52,031.00 5 $ 62,283.00 Finance Less than 2 years 2 to 5 years Non-Finance Less than 2 years 6 $ 57,718.00 Finance Less than 2 years 7 $ 79,081.00 Non-Finance More than 5 years 8 $ 48,621.00 Finance Less than 2 years 9 $ 72,835.00 Non-Finance More than 5 years 10 $ 54,768.00 Finance 2 to 5 years 11 $ 52,282.00 Finance 2 to 5 years 12 $ 55,632.00 Finance 13 $ 63,856.00 Non-Finance 14 $ 51,827.00 Finance 15 $51,948.00 Finance 16 $56,588.00 Finance 17 $68,858.00 Non-Finance 18 $ 63,478.00 Non-Finance 19 $ 83,846.00 Non-Finance 20 $59,253.00 Finance 21 $ 53,464.00 Finance 22 $ 83,176.00 Non-Finance 23 $ 60,949.00 Finance 24 $52,833.00 25 $ 72,914.00 Finance Non-Finance 26 $83,040.00 Non-Finance 2 to 5 years 27 $ 64,288.00 Non-Finance Less than 2 years Less than 2 years 2 to 5 years Less than 2 years 2 to 5 years Less than 2 years Less than 2 years 2 to 5 years More than 5 years Less than 2 years 2 to 5 years More than 5 years Less than 2 years More than 5 years Less than 2 years 28 $ 64,562.00 Finance More than 5 years 29 $ 52,644.00 Finance More than 5 years 30 $ 55,959.00 Finance Less than 2 years 31 $ 88,730.00 Non-Finance 2 to 5 years 32 $77,683.00 Non-Finance 2 to 5 years 33 34 $ 56,339.00 $71,345.00 Finance Non-Finance More than 5 years Less than 2 years 35 $ 63,799.00 Finance Less than 2 years 36 $ 78,074.00 Non-Finance More than 5 years 37 $ 65,546.00 Non-Finance Less than 2 years 38 $ 59,057.00 Finance 2 to 5 years 39 $ 66,024.00 Non-Finance 40 $59,457.00 Finance 41 $ 79,383.00 Non-Finance 42 $61,128.00 Non-Finance 43 $ 54,122.00 Finance Less than 2 years More than 5 years 2 to 5 years Less than 2 years Less than 2 years