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Talishan Shoe Company (B). Talishan Shoe Company of Durham, North Carolina, has recelved an order for 50,500 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 Southamplon Footware. The letter of credit specifies that the face value of the shipment, 393,000, will be paid 120 days after the London bank accepts a draft drawn by Southampton Footware in accordance with the terms of the letter of credit. The current discount rate in London on 120 -day bankers' acceptances is 11.6\% per annum, and Southampton Footware estimates its weighted average cost of capital to be 17.8% per annum. The commission for selling a bankers' acceptance in the discount market is 2.1% of the tace amount. a. Would Talishan Shoe Company gain by holding the acceptance to maturity, as compared to discounting the bankers' acceptance at once? b. Does Talishan Shoe Company incur any other risks in this transaction? o. Assume that Great Brtabin charges an import duty of 9.6% on shoes imported into the Uniled Kingdom. Talishan Shoe Company discovers that it can manufacture shoes in Ireland and import them into Britain free of any import duty. What factors should Talishan consider in dociding to continue to oxport shoes from North Carolina versus manufacture them in ireland? (NOTE: Assume a 360-day year) a. Would Talishan Shoe Company gain by holding the acceptance to matunty, as compared to discounting the bankers' acceptance at once? Aternative 1: If Southampten Footware holds the dratt for 120 days after the bank has accopted in, Talishan Shoe will received the face amount of f393,000. The present value of 393,000 received 120 days hence, discounted at Tolshan Shoe's WACC is & (Round to two decimal places.)

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