XYZ Ltd. has imported goods to the extent of US$ 8 Million. The payment terms are as under: (1) 1% discount if full amount is paid immediately, or…

CA Final · Advanced Financial Management · PYQS · January 2026
XYZ Ltd. has imported goods to the extent of US$ 8 Million. The payment terms are as under: (1) 1% discount if full amount is paid immediately, or (2) 60 days interest free credit. However, in case of a further delay up to 30 days, interest at the rate of 8% p.a. will be charged for additional days after 60 days. XYZ Ltd. has 25 Lakh available and for remaining it has an offer from bank for a loan upto 90 days @ 9.0% p.a. The quotes for foreign exchange are as follows: Spot Rate INR/ US$ (buying) ₹ 66.98 60 days Forward Rate INR/ US$ (buying) ₹ 67.16 90 days Forward Rate INR/ US$ (buying) ₹ 68.03 Advise which one of the following options would be better for XYZ Ltd.: (i) Pay immediately after utilizing cash available and for balance amount take 90 days loan from bank. (ii) Pay the supplier on 60 th day and avail bank's loan (after utilizing cash) for 30 days. (iii) Avail supplier's offer of 90 days credit and utilize cash available. Further presume that the cash available with XYZ Ltd. will fetch a return of 4% p.a. in India till it is utilized. Note: Assume year has 360 days.Ignore Taxation.Cashflows in Crore.Round off all intermediate and final calculations to four decimal places.

Suggested Answer and Working Notes:

(i) Pay immediately to avail the discount Spot Rate 66.98 Payment Due USD 79,20,000 (₹ Crore) Outflow in Rupees (USD 79,20,000 × ₹ 66.98) 53.0482 Less: Cash Available (a) 0.2500 Balance amount to be borrowed from bank 52.7982 Add: Interest on loan for 90 days@9% p.a. 1.1880 Add: Opportunity Cost of Surplus Cash (b) 0.0025 Total Outflow in Crore (a+b) 53.9887 OR If Opportunity Cost of Surplus Cash is not considered then, the Total Outflow will be 54.2387 - 0.0025 = 54.2362 Crore (ii) Pay the supplier in 60 days If the payment is made to supplier in 60 days the applicable forward rate for 1 USD 67.16 Payment Due USD 8,000,000 (₹ Crore) Outflow in Rupees (USD 8000000 × ₹ 67.16) 53.7280 Less: Cash Available (a) 0.2500 Interest on the same for 60 days @4% p.a. 0.0017 Balance amount to be borrowed from bank 53.4763 Add: Interest on loan for 30 days @9% p.a. 0.4011 Loan Outflow in ₹Crore (b) 53.8774 Total Outflow in ₹Crore (a) + (b) 54.1274 (iii) Availing supplier's offer of 90 days credit Amount Payable USD 8,000,000 Add: Interest on credit period for 30 days@8% p.a. USD 53,333 Total Outflow in USD USD 8,053,333 Applicable forward rate for 1 USD 68.03 Outflow in ₹Crore (USD 8,053,333 × ₹ 68.03) 54.7868 Less: Interest Earned on Cash for 90 Days @ 4% in ₹Crore 0.0025 Total Outflow in ₹Crore 54.7843 Alternative (ii) is better as it entails lower cash outflow.

Topics: International Financial Management

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