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

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.

Posted Date: 3/12/2013 6:08:35 AM | Location : United States







Related Discussions:- the rate of interest on the gold is too high or too low, Assignment Help, Ask Question on the rate of interest on the gold is too high or too low, Get Answer, Expert's Help, the rate of interest on the gold is too high or too low Discussions

Write discussion on the rate of interest on the gold is too high or too low
Your posts are moderated
Related Questions
Calculation of Profitability ratios  -                     2008 2009 2010 G Net Sal

Revenue recognition is a joint project of financial accounting standard board and international accounting standard board.1.identify the roles and objectives of FASB and IASB?.2. W

Static Balancing : This balancing is complete in the plane of unbalance. Dynamic Balancing : In this case two balance planes are needed because forces along couples are to

In January 2013, Mitzu Co. pays $2,600,000 for a tract of land with two buildings on it. It plans to demolish Building I and build a new store in its place. Building 2 will be a co

what is use of accounting ratios?

MarmadukeMuffett once had a girlfriend who ran an antiques business in London'sKings Road. Ever since then, he has been hooked on the furniture trade and now runsMarmaduke'sMarvell

On December 31, 2004, International Refining Company purchased machinery having a cash selling price of $85,933.75. The company paid $10,000 down and agreed to finance the remainde

An entity had the following transactions during the year ended 31 December 2010: The entity invested in a convertible bond on its issue date. The bond matures four years aft

An accountant made the following adjustments at December 31, the end of the accounting period: a. Prepaid insurance, beginning, $400. Payments for insurance during the period, $1,2

How should I handle Booking an invoice in one month for Raw material that has not been received until the following month?