748903401.

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Q1. PRESENT VALUE

A. What is the present value of $30,000 received 6 years from now, assuming 20% interest?

6
30000/ (1+20 %)

B. What is the present value of an annuity of $3,000 received over 6 years, assuming 20%
interest?

6
1
3000∗∑
t=1 (1+20 % )t

C. What is the present value of a note that requires equal payments of $3,000 per year for 6
years and a single payment of $30,000 at the end of the 6th year from now, assuming 20%
interest?

3000*3.32551+30,000*0.3349

D. What is the present value of a note that requires equal payments of $1,500 every 6
months for 6 years and a single payment of $30,000 at the end of the 6th year from now,
assuming 20% interest?

1,500*6.81369+30,000*0.11216

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Q2. PILING UP DEBTS

Supply-Chain Finance Is New Risk in Crisis

Experts say the economic slowdown could expose weak spots in the arrangements

By Jean Eaglesham
April 4, 2020

A “sleeping risk” on the books of U.S. businesses could be awakened by

the pandemic, as the sudden cash crunch exposes a hidden type of
financing that makes balance sheets look better, credit-rating firms are
warning.

The three biggest ratings firms each issued reports last month highlighting
the dangers of supply-chain financing, a fast-growing, opaque technique
for delaying payments to suppliers to improve cash flow.
…
Supply-chain financing has been around for decades but really took off after
the financial crisis.

Using this financing, companies effectively borrow money to pay their bills,
extending, say, 60-day payment terms to six months or more. It would be
like taking a personal loan to pay a credit-card bill.

The arrangement gives companies flexibility with their cash for a low cost,
but it can paint a rosy picture of the businesses’ liquidity because the deals
effectively boost working capital but typically don’t count as borrowing.
Instead the loans are treated as trade debt or accounts payable, and don’t
need to be disclosed. “They remain under the radar until the company runs
into problems,” said Mr. Gits of Fitch Ratings.

The above is extracted from a Wall Street Journal article about supply-chain
financing. The original news article is attached as a separate PDF file in this group
exercise.
From the above, please answer the following questions:
A. Explain what the supply-chain financing is in your own words. Ask each of your
group members to describe it based on his/her own understanding.

A way company pay their bills but it doesn’t count as borrowing ,making the company
looks more profitable.
Company would like to maximize its cash by hand.

(accounts payable in appearance, essentially notes payable)

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B. How would the supply-chain financing affect financial statements and the
perceived default risk by investors?

Current liability decreases and the working capital is higher, default risk is higher.

N/P(interest) but for A/P, there’s no interest

The risk of not paying N/P is higher than that of A/P

If you have enough time, continue reading the following from the same article
and try to answer the follow-up questions below:

One of the highest-profile suppliers of supply-chain finance is Greensill

Capital, which is backed by almost $1.5 billion from SoftBank
Group Corp.’s Vision Fund, and last year did a total of $150 billion in
financing, according to its website.

Lex Greensill, the company’s founder and chief executive, said in an

interview that he believes the problem facing the industry is “demand has
escalated so much that providers are not going to be able to keep up,” rather
than existing financing being withdrawn. His company has seen demand
triple in the past few weeks, he said, adding it was “working flat out to get
more support to more corporates.”

The Credit Suisse funds, which the bank said aren’t sold to individual
investors, source their assets totaling around $9 billion mostly from
Greensill. Greensill sells the debts owed to suppliers to the funds in the form
of short-term notes.

C. Explain the role of Greensill and Credit Suisse funds in supply-chain financing.

D. If companies run out of cash and default on their accounts payable, what do you
think will happen?

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ASSIGN WORK

Number of
Task people Name
a. Submit on Canvas 1 SUN, yunchu

Other than above, who has contributed or tried to contribute to this exercise? List
names below.
SO, Hon Yin
Hsu-hsuan HSIA
YANG, Kai-hui
KO, Yeuk Fei
TSAO Yu-ting
LEUNG, Tsz Hei

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