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Talishan Shoe Company (A). Talishan Shoe Company of Durham, North Carolina, has received an order for 52,000 cartons of athletic shoes from Southampton Footware, Ltd., of England, payment to be in British pounds sterling. The shoes will be shipped to Southampton Footware under the terms of a letter of credit issued by a London bank on behalf of Southampton Footware. The letter of credit specifies that the face value of the shipment, 402,000, will be paid 120 days afer the London bank accepts a drat drawn by Southampton Footware in accordance with the terms of the letter of credi. The current discount rate in London on 120 -day bankers' acceptances is 12% per annum, and Southampton Footware estimates its woighted average cost of capital to be 18.2% per annum. The commission for selling a bankers' acceptance in the discount market is 1.9% of the face amount. a. Would Talishan Shoe Compeny gain by holding the acceptance to maturity, as compared to discounting the bankers' acceptance at once? b. Does Tolshan Shoe Company incur any other risks in this transaction? (NOTE: Assume a 360-day year.) a. Would Talishan Shoe Company gain by holding the acceptance to maturity, as compared to discounting the bankers' acceptance at cnce? Alternative 1: If Southampton Footware holds the draft for 120 days after the bank has accepted it, Talishan Shoe will received the face amount of I402,000. The presont value of 1402,000 received 120 days hence, discounted at Talishan Shoe's WACC is 1 (Round to two decimal places.) Talishan Shoe Company (A). Talishan Shoe Company of Durham, North Carolina, has received an order for 52,000 cartons of athletic shoes from Southampton Footware, Ltd., of England, payment to be in British pounds sterling. The shoes will be shipped to Southampton Footware under the terms of a letter of credit issued by a London bank on behalf of Southampton Footware. The letter of credit specifies that the face value of the shipment, 402,000, will be paid 120 days afer the London bank accepts a drat drawn by Southampton Footware in accordance with the terms of the letter of credi. The current discount rate in London on 120 -day bankers' acceptances is 12% per annum, and Southampton Footware estimates its woighted average cost of capital to be 18.2% per annum. The commission for selling a bankers' acceptance in the discount market is 1.9% of the face amount. a. Would Talishan Shoe Compeny gain by holding the acceptance to maturity, as compared to discounting the bankers' acceptance at once? b. Does Tolshan Shoe Company incur any other risks in this transaction? (NOTE: Assume a 360-day year.) a. Would Talishan Shoe Company gain by holding the acceptance to maturity, as compared to discounting the bankers' acceptance at cnce? Alternative 1: If Southampton Footware holds the draft for 120 days after the bank has accepted it, Talishan Shoe will received the face amount of I402,000. The presont value of 1402,000 received 120 days hence, discounted at Talishan Shoe's WACC is 1 (Round to two decimal places.)

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