A company observes that the value date for an electronic transfer payment to one of its suppliers for providing it with components, occurs 3 days earlier than if it issued a cheque for the same payment and value. So the company prefers to pay the supplier by cheque. When it realizes this, the supplier offers a discount to the company to incentivise it to pay by electronic transfer instead of by cheque. How much of a discount in percentage terms should the discount offered by the supplier be? Assume that an electronic payment cost is 0.5 percent higher than the cost of issuing a cheque and that the prevalent market discount rate is 5 percent. Also assume that there is float neutrality.
A company observes that the value date for an electronic transfer payment to one of its suppliers for providing it with components, occurs 3 days earlier than if it issued a cheque for the same payment and value. So the company prefers to pay the supplier by cheque. When it realizes this, the supplier offers a discount to the company to incentivise it to pay by electronic transfer instead of by cheque. How much of a discount in percentage terms should the discount offered by the supplier be? Assume that an electronic payment cost is 0.5 percent higher than the cost of issuing a cheque and that the prevalent market discount rate is 5 percent. Also assume that there is float neutrality.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Question 1
A company observes that the value date for an electronic transfer payment to one of
its suppliers for providing it with components, occurs 3 days earlier than if it issued a
cheque for the same payment and value. So the company prefers to pay the supplier
by cheque. When it realizes this, the supplier offers a discount to the company to
incentivise it to pay by electronic transfer instead of by cheque. How much of a
discount in percentage terms should the discount offered by the supplier be? Assume
that an electronic payment cost is 0.5 percent higher than the cost of issuing a cheque
and that the prevalent market discount rate is 5 percent. Also assume that there is
float neutrality.
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