Ch14_SSol - Problem 14.3 Raid Gauloises Raid Gauloises is a...

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Problem 14.3 Raid Gauloises Expected Chg Assumptions Values in LIBOR Principal borrowing need € 20,000,000 Maturity needed, in years 4.00 Current euro-LIBOR 4.000% Banque de Paris' spread & expectation 2.000% 0.500% Banque de Paris' initiation fee 1.800% Banque de Sorbonne's spread & expectation 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 Year 0 Year 1 Year 2 Year 3 Year 4 Expected interest rates & payments: Expected euro-LIBOR 4.000% 4.500% 5.000% 5.500% 6.000% Bank spread 2.000% 2.000% 2.000% 2.000% 2.000% Interest rate 6.000% 6.500% 7.000% 7.500% 8.000% Funds raised, net of fees € 19,640,000 Expected interest costs -€ 1,300,000 -€ 1,400,000 -€ 1,500,000 -€ 1,600,000 Repayment of principal -€ 20,000,000 Total cash flows € 19,640,000 -€ 1,300,000 -€ 1,400,000 -€ 1,500,000 -€ 21,600,000 All-in-cost of funds if: euro-LIBOR rises 0.500% per year 7.7438% euro-LIBOR rises 0.250% per year 7.1365% Found by plugging in .250% in expectations above. Banque de Sorbonne Loan Proposal Year 0 Year 1 Year 2 Year 3 Year 4 Expected interest rates & payments: Expected euro-LIBOR 4.000% 4.250% 4.500% 4.750% 5.000% Bank spread 2.500% 2.500% 2.500%
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