+598 Mr. Lee is evaluating this option. He had decided to finance the purchase of this new inventory using a personal asset valued at $600,000 USD. The plan is to make a loan to his business. He prefers this alternative to bank financing and he is certain the product will generate a profit for his investment. His intention is to convert the asset to Canadian funds and invest it in two, successive 30-day GIC’s in order to accrue interest on this sum while waiting for the goods to arrive. The bank is offering a rate of 3.25% pa and the current exchange rate is 1CAD=0.900USD.
The supplier is offering a cash incentive of 1% of the total order value if Mr. Lee will commit to a 25% deposit of the total order value, non-refundable, when the order is placed.
1 . If Mr. Lee takes the supplier offer, what is the sum of the discount and total interest earned on the remaining investment?
Any help would be greatly appreciated with steps
Thanks so much
This is also very simple. The supplier is offering a discount of 1%, if Mr. Lee agrees to pay 25% of the total cost up front. If the total cost is $60 X 8,000=$480,000, then Mr. Lee gets 1% off $480,000=$4,800 discount. Which means the net cost to him is $480,000 - $4,800=$475,200. And Mr. Lee has to pay 25% up front, or .25 X $475,200=$118,800. Now, Mr. Lee's personal asset was $560,000CDN. From which you to subtract the above "down payment": $560,000 - $118,800=$441,200. If Mr. Lee buys a 30-day "GIC" for this amount, then you can figure it out yourself as we did for the full amount of $560,000.00 and determine the amount of interest he will earn of this smaller deposit.
