L.A. Cellular has received an order for phone switches from Singapore. The switches will be exported under
Question:
a. How much cash will L.A. Cellular receive if it holds the acceptance until maturity?
b. How much cash will it receive if it sells the acceptance at once?
c. Suppose L.A. Cellular's opportunity cost of funds is 8.75% per annum. If it wishes to maximize the present value of its acceptance, should it discount the acceptance?
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal... Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the... Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...
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