Given the following information which financing method has the lowest interest cost? How

much interest savings do you make by using the financing method with the lowest interest

cost$?[3]$

Loan Bankers$$ Acceptance

Amount R$3500000$ R$3500000$

Term $180$ days $180$ days

Rate: Prime $+3\mathrm{.}5\%$ Banker$$s Acceptance rate $+3\mathrm{.}5\%$

$9\%+3\mathrm{.}5\%7\mathrm{.}9\%+3\mathrm{.}5\%$

$2\mathrm{.}2$ eThekwini, Breweries of KwaZulu Natal, South Africa, has received an order for $10000$

cartons of beer from Alicante Importers of Alicante, Spain. The beer will be exported to Spain

under the terms of a letter of credit issued by a Madrid bank on behalf of Alicante Importers.

The letter of credit specifies that the face value of the shipment, US$$720000,$ will be paid $90$

days later, after the Madrid bank accepts a draft drawn by eThekwini Breweries in accordance

with the terms of the letter of credit.

The current discount rate on a three$-$month banker$$s acceptance is $8\%$ per annum, and

eThekwini Breweries estimates its weighted average cost of capital to be $20\%$ per annum.

$2$

The commission for selling a banker$$s acceptance in the discount market is $1\mathrm{.}2\%$ of the face

amount.

How much cash will eThekwini Breweries receive from the sale if it holds the acceptance until

maturity? Do you recommend that eThekwini Breweries hold the acceptance until maturity, or

discount it at once in the U$.$S$.$ banker$$s acceptance market?