Cypress Systems Inc., of Florida, agrees to sell specialized hydroponic growing equipment to Landcaster's of Australia. Because the two companies have never done business with each other, Cypress requires a banker's acceptance as payment for the $1,000,000 order. The banker's acceptance carries a 1.4% commission per annum and payment is to be received in 6 months. If Cypress Inc. chooses to discount or sell the banker's acceptance to its bank, the discount rate is 1.00% per annum.

1. What is the size of the discount (not including the commission fee) Cypress must take for receiving the proceeds of the sale today rather than waiting for six months?
2. What is the size of the commission Cypress will pay the bank for the banker's acceptance?
3. What is the total Cypress can expect to receive if the firm takes payment today?

Answer rating: 100% (QA)

To calculate the size of the discount excluding the commission fee that Cypress must take for receiv... View the full answer