the rate of interest on the gold is too high or too low, Financial Accounting

Assignment Help:

Suppose you are a financial manager of Yuen Cheong Manufacturng Company. Due to the rising demand of product X, Yuen Cheong
Manufacturng Company decides to open a new production plant in China, so it needs to take a loan of US$1 million. Bank A offers Yuen Cheong Manufacturing Company the following two choices of loan:

i borrowing cash at 12% per annum, compounded annually

ii borrowing gold at 3% per annum, compounded annually.

Assume the risk-free interest rate is 9.5% per annum and storage costs are 0.5% per annum, both are expressed with continuous compounding. Evaluate which loan you should choose from Bank A. Discuss and briefly explain whether the rate of interest on the gold is  too high or too low in relation to the rate of interest on the cash loan.


Related Discussions:- the rate of interest on the gold is too high or too low

Prepare the contract account, During its financial year ended 30 June 20x7 ...

During its financial year ended 30 June 20x7 Beavers Ltd, an engineering company, has worked on several contracts. Information relating to one of them is given below.

Primary restriction of making demand, Q. Primary restriction of making dema...

Q. Primary restriction of making demand? The primary restriction of making demand forecasts lies in the fact that they are forecasts and hence their reliability is unknown. Mos

Method of accounting for securities, Settlement Method - Method of ACCOUNTI...

Settlement Method - Method of ACCOUNTING for SECURITIES whereby transactions are recorded on the date securities settle by delivery or receipt of securities and receipt or payment

Proposed dividends by subsidiary company, Proposed dividends by subsidiary ...

Proposed dividends by subsidiary company If the subsidiary company has proposed some dividends appearing under current liabilities then the dividends are payable to the holding c

brooks''s stock, Investors need a 15% rate of return on Brooks Sisters' st...

Investors need a 15% rate of return on Brooks Sisters' stock (rs = 15%). a.  What would the value of Brooks's stock be if the last dividend was D0 = $1.5 and if investors expect

Ordinary annuity , Number of Periods of a one Payment a) If you deposit ...

Number of Periods of a one Payment a) If you deposit money today in an account that pays 7.5% yearly interest, how long will it take to double your money? b) What's the future

Construct the market value balance sheet, Construct the Market Value Balanc...

Construct the Market Value Balance Sheet XYZ, Inc., another company founded by Larry Davidson in 2005, is currently entirely equity financed. That means the company carries no

Which of the following is not an example of an agency cost?, Which of the f...

Which of the following is NOT an example of an agency cost? A. Paying an accounting firm to audit your financial statements. B. Paying an insurance company to assure that b

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd