a. Adelaide Corporation could borrow the US$30,000,000 for two years at a fixed 5% rate of interest
b. Adelaide Corporation could borrow the US $30,000,000 at LIBOR +1.5% LIBOR is currently at 3.5% and the rate would be reset every six months.
c. Adelaide Corporation could borrow the US $30,000,000 for one year only at 4.5% at the end of the first year, Adelaide corporation would have to negotiate for a new one year loan.
Compare the alternative and make a recommendation
7. Xavier and Zulu. Xavier manufacturing and Zulu products both seek funding a the lowest possible cost Xavier would prefer the flexibility of floating are borrowing, while Zulu want the security of fixed rate borrowing. Xavier is the more credit worthy company. They face the following rate structure Xavier with the better credit rating has lower borrowing costs in both types of borrowing::
Credit rating AAA BBB
Fixed rate cost
Of borrowing 8% 12%
Cost of borrowing LIBOR+1% LIBOR + 2%
Xavier wants floating rate debt so it could borrow at LIBOR+1% however it could borrow fixed at 8% and swap for a floating rate debt Zulu want fixed rate so it could borrow fixed at 12% however it could borrow floating at LIBOR+2% and swap for fixed rate debt what should they do?
Recently Asked Questions
- For most distributions , ___________________ of all observations are within one standard deviation of the mean .
- Compared to the standard deviation for the distribution of SAT I scores for college students , the standard deviation for the distribution of SAT I scores for
- A key property of the interquartile range is its