Forfaiting at Umaru Oil $($Nigeria$).$ Umaru Oil of Nigeria has purchased $$1,150,000$ of oil drilling equipment from Gunslinger Drilling of Houston, Texas. Umaru Oil must pay for this purchase

over the next five years at a rate of $$230,000$ per year due on March $1$ of each year.

Bank of Zurich, a Swiss forfaiter, has agreed to buy the five notes of $$230,000$ each at a discount. The discount rate would be approximately $7\mathrm{.}3\%$ per annum based on the expected $3-$year

LIBOR rate plus $200$ basis points, paid by Umaru Oil. Bank of Zurich would also charge Umaru Oil an additional commitment fee of $1\mathrm{.}9\%$ per annum from the date of its commitment to finance

until receipt of the actual discounted notes issued in accordance with the financing contract. The $$230,000$ promissory notes will come due on March $1$ in successive years.

The promissory notes issued by Umaru Oil will be endorsed by their bank, Lagos City Bank, for a $1\mathrm{.}2\%$ fee and delivered to Gunslinger Drilling. At this point, Gunslinger Drilling will endorse the

notes without recourse and discount them with the forfaiter, Bank of Zurich, receiving the full $$230,000$ principal amount. Bank of Zurich will sell the notes by rediscounting them to investors in

the international money market without recourse. At maturity, the investors holding the notes will present them for collection at Lagos City Bank. If Lagos City Bank defaults on payment, the

investors will collect on the notes from Bank of Zurich.

a$.$ What is the annualized percentage all$-$in cost to Umaru Oil of financing the first $$230,000$ note due March $1,$ one year from today?

b$.$ What might motivate Umaru Oil to use this relatively expensive altemative for financing?

$($NOTE: Assume a $360-$day year.$)$