Example

1: Finance alternatives I
TheGlobalFinanceAGhasthechangetobuyabatchofCanadianwheatatapriceof10.000.000.
Thevendoroffersthefollowingtermsofpayment:

a) heallowsa3%discountforpaymentwithin20days
b) thereisnocashdiscountforpaymentswithin60days

TheGlobalFinanceAGwouldhavethechancetoresellthebatchofwheattotheMillerGmbH(price:
10.000.000termsofpayment50daysnet).TheGlobalFinanceAGrecognizesasprofitinthis
transaction,buysthebatchofwheatandresellsittotheMillerGmbH.Thevendordeliversthewheat
straighttotheMillerGmbH.Theconclusionofthecontractsandthedeliveryofthewheattakeplace
atthesameday.
TheGlobalFinanceAGhasanunlimitedcreditline(interestrateof12%p.a.)Ontheotherhandthe
GlobalFinanceAGcouldinvestliquidsurplusesataninterestrateof3.6%p.a.
TheGlobalFinanceAGhasNOownfundsavailableandreliesononeofthementionedfinance
alternatives.
WhichfinancealternativeshouldtheGlobalFinanceAGchooseinordertorealizethe
maximumprofit60daysaftertheconclusionofthecontracts?YoucanassumethattheMiller
GmbHwillpayafter50days.
Calculatealsotheannualcashdiscountrate.
A.)Optionsforwheatpurchase10.000.000 B.)Optionsforwheatsell
1. 3%cashdiscountwithin20days 10.000.000within50days
2. Nocashdiscountwithin60days

>>GlobalFinanceAGthereforebuysthewheatandsellsitstraighttoMillerGmbH,whichpaysafter
50days.PaymentanddeliverstraighttoMillerGmbHisatthesameday.
Otherincomeoptions/constraints
GlobalFinanceAG>12%p.a.unlimitedcreditline
GlobalFinanceAG>3.6%p.a.forliquidsurpluses
GlobalFinanceAGhasnofoundavailable

Solution
1.) MillerGmbH GFAG
50days 60days

2.) GFAG MillerGmbH

20days 50days

Variant 2 (with 3% cash discount)

Paymentafter20days: 10.000.000
Discount(Skonto): 300.000
9.700.000netpayment

GlobalFinancehasnomoneysincepaymentwillcomeonday50
 >>getacreditfromthebank>>5020days=30daysto12%

Interestreceivable(Kreditzinsen):9.700.000*12%*30/360=97.000

Balancesheet(Abschluss)

10.000.000
9.700.000 repaymentofloan(Kredittilgung)
300.000 cashdiscount
97.000 interest
203.00

Bankdeposit(Einlage)for10days(6050): 203.000*3,6%*10/360=203
=203.203gain(Gewinn)

Variant 1(no cash discount)

Incomingpayment(Zahlungseingang)onday50: 10.000.000
Bankdeposit(Einlage)for10days(6050): 10.000.000*3,6%*10/360
=10.000gain(Gewinn)

Annualcashdiscountrate(Verzugszinsenerlass)

>> 1 =27,83%