Solutions_ch14

Solutions_ch14 - Problem 14.1 Andina S.A From which source should Andina borrow Assumptions Principal borrowing need Maturity needed in weeks Rate

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Problem 14.1 Andina, S.A. From which source should Andina borrow? Assumptions Values Principal borrowing need $8,000,000 Maturity needed, in weeks 8 Rate of interest charged by ALL potential lenders 4.000% New York interest rate practices Interest calculation uses: Exact number of days in period 56 Number of days in financial year 360 So the interest charge on this principal is $49,777.78 Great Britain interest rate practices Interest calculation uses: Exact number of days in period 56 Number of days in financial year 365 So the interest charge on this principal is $49,095.89 Swiss interest rate practices Interest calculation uses: Assumed 30 days per month for two months 60 Number of days in financial year 360 So the interest charge on this principal is $53,333.33 Andina should borrow in Great Britain because it has the lowest interest cost.
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Problem 14.2 Adelaide Corporation Compare the alternatives and make a recommendation. Assumptions Values Principal borrowing need $30,000,000 Maturity needed, in years 2.00 Fixed rate, 2 years 5.000% Floating rate, six-month LIBOR + spread Current six-month LIBOR 3.500% Spread 1.500% Fixed rate, 1 year, then re-fund 4.500% First 6-months Second 6-months Third 6-months Fourth 6-months #1: Fixed rate, 2 years Interest cost per year $1,500,000 $1,500,000 Certainty over access to capital Certain Certain Certain Certain Certainty over cost of capital Certain Certain Certain Certain #2: Floating rate, six-month LIBOR + spread Interest cost per year $750,000.00 $750,000.00 $750,000.00 $750,000.00 Certainty over access to capital Certain Certain Certain Certain Certainty over cost of capital Certain Uncertain Uncertain Uncertain #3: Fixed rate, 1 year, then re-fund Interest cost per year $1,350,000.00 ??? ??? Certainty over access to capital Certain Certain Uncertain Uncertain Certainty over cost of capital Certain Certain Uncertain Uncertain Only alternative #1 has a certain access and cost of capital for the full 2 year period. Alternative #2 has certain access to capital for both years, but the interest costs in the final 3 of 4 periods is uncertain. Alternatvie #3, possessing a lower interest cost in year 1, has no guaranteed access to capital in the second year. Depending on the company's business needs and tolerance for interest rate risk, it should choose between #1 and #2.
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Problem 14.3 Raid Gauloises Given interest rate expectations, which loan is the best deal? Expected Chg Assumptions Values in LIBOR Principal borrowing need € 20,000,000 Maturity needed, in years 4.00 Current euro-LIBOR 4.000% 2.000% 0.500% Banque de Paris' initiation fee 1.800% 2.500% 0.250% Banque de Sorbonne's initiation fee 0.000% Raid Gauloises must evaluate both loan proposals under both potential interest rate scenarios. Banque de Paris Loan Proposal
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This note was uploaded on 12/02/2009 for the course FIN ? taught by Professor ? during the Spring '09 term at 東京大学.

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Solutions_ch14 - Problem 14.1 Andina S.A From which source should Andina borrow Assumptions Principal borrowing need Maturity needed in weeks Rate

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