The CFO of a company needs 10,000 euros to deal with an unexpected payment and considersthe possibility of discounting two promissory notes issued to one of his best customers. The firstpromissory note has a face value of €5,500 and a maturity of 30 days. The second promissorynote has a face value of €5,500 and a maturity of 45 days. The discount rate that the bank appliesin these operations is 9%. Additionally, the bank charges a commission of 0.5% on the face value.Taxes are €16.80 in the discounting of each promissory note.With this information,a) Calculate the amount of cash received in the batch of discounted promissory notes. Will thebusiness receive enough cash to cover their liquidity needs? Justify your answer.b) Specify the equation of financial equivalence required to calculate the cost experienced by thecompany (in terms of annual effective interest rate) in discounting the batch of promissory notes.c) Specify the equation of financial equivalence required to calculate the return or yield obtainedby the bank (in terms of annual effective interest rate) in discounting the batch of promissorynotes.

Funds Requirement € 10,000 Promissory Note-1 € 5,500 Maturity period 30 days…

a) Calculate the amount of cash recelve business receive enough cash to cover their liquidity needs? Justify your answer. b) Specify the equation of financial equivalence required to calculate the cost experienced by the company (in terms of annual effective interest rate) in discounting the batch of promissory notes. c) Specify the equation of financial equivalence required to calculate the return or yield obtained by the bank (in terms of annual effective interest rate) in discounting the batch of promissory otes

a) Calculate the amount of cash recelve business receive enough cash to cover their liquidity needs? Justify your answer. b) Specify the equation of financial equivalence required to calculate the cost experienced by the company (in terms of annual effective interest rate) in discounting the batch of promissory notes. c) Specify the equation of financial equivalence required to calculate the return or yield obtained by the bank (in terms of annual effective interest rate) in discounting the batch of promissory otes

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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