Kacey Limited is forecasting a temporary cash shortfall of a

Kacey Limited is forecasting a temporary cash shortfall of about $500,000 and needs to undertake some short-term financing to meet this requirement. The funds ($500,000) will be needed for 30 days and the following alternatives are available: Por cash discounts on purchases made frorm suppliers. The terms offered by the ut a loan from the Vancouver Credit Union. The interest rate quoted by the company\'s suppliers are 2/10, net 40 sc. Take o credit union is 13% (annually). In addition, Kacey must maintain a compensating balance with the credit union equivalent to 5 percent of the amount borrowed. Issue commercial paper. Thirty day commercial paper with a maturity value of S505,500 could be issued for $500,000. Required: Calculate the effective annua! cost (EAR) of each of the above three altematives.

Solution

Relative price of cheese in France in aurally is 2cars.The relative price is the amount of one good here cheese to obtain one unit of other good

Relative price of cheese in Germany in is 1car.Relative price definition is same as above

Germany has comparative advantage in cheese since it requires only loss of 1 car to produce cheese whileas it is 2 cars in case of france

France has relative advantage in cars since its relative price =1/2=0.5 whereas in Germany it is 0.8/1=0.8