Question
Company A is supposed to pay 30cr to its supplier at end of 33 months. If, instead of paying 30cr at end of 33 months,
Company A is supposed to pay 30cr to its supplier at end of 33 months. If, instead of paying 30cr at end of 33 months, it pays x cr, x cr and x cr at end of 12, 24 and 33 months respectively, what will be the value of x? Let us assume cost of capital to be 10%. My current calculation suggests it should be 9.21cr. If you also get the same answer, the question is, should we not take into account the extra cost that will be incurred by A due to need to borrow money at end of 12, 24 months to pay its supplier? So, if the interest rate is, say 12%, should I not reduce 1.65cr payment at end of 12 months to supplier, and 0.75cr at end of 24 months from 9.21cr?
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