A Multinational Enterprise firm is considering to borrow $50 million loan for five-year maturity. It will be an amortized loan, where interest and principal payments will be paid as constant amount of annual instalment till the maturity of loan. However, company has serious concerns over cost of capital investment, structure and appropriateness of interest rate. Based on the credit standing, the borrowing firm assumes 12% interest as an appropriate rate in current financial market. However, local and international banks/financial services providers are negotiating at different interest rate. Based on the above scenario, you are the required to: a- Calculate the amortized interest, principal and total payments schedules for 5 Years @ 12% benchmark rate and compare the same with two different assumed interest rates (minimum & Maximum) offered by banks respectively. b- Evaluate the effect of these different interest rates on the potential annual payments and risks involved for a multinational borrowing firm.
A Multinational Enterprise firm is considering to borrow $50 million loan for five-year maturity. It will be an amortized loan, where interest and principal payments will be paid as constant amount of annual instalment till the maturity of loan. However, company has serious concerns over cost of capital investment, structure and appropriateness of interest rate. Based on the credit standing, the borrowing firm assumes 12% interest as an appropriate rate in current financial market. However, local and international banks/financial services providers are negotiating at different interest rate. Based on the above scenario, you are the required to: a- Calculate the amortized interest, principal and total payments schedules for 5 Years @ 12% benchmark rate and compare the same with two different assumed interest rates (minimum & Maximum) offered by banks respectively. b- Evaluate the effect of these different interest rates on the potential annual payments and risks involved for a multinational borrowing firm.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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1F- Please solve all subparts questions in detail. Many thanks
Transcribed Image Text:Q.1
A Multinational Enterprise firm is considering to borrow $50 million loan for five-year maturity.
It will be an amortized loan, where interest and principal payments will be paid as constant
amount of annual instalment till the maturity of loan. However, company has serious concerns
over cost of capital investment, structure and appropriateness of interest rate. Based on the
credit standing, the borrowing firm assumes 12% interest as an appropriate rate in current
financial market. However, local and international banks/financial services providers are
negotiating at different interest rate.
Based on the above scenario, you are the required to:
a- Calculate the amortized interest, principal and total payments schedules for 5 Years @ 12%
benchmark rate and compare the same with two different assumed interest rates (minimum &
Maximum) offered by banks respectively.
b- Evaluate the effect of these different interest rates on the potential annual payments and risks
involved for a multinational borrowing firm.
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