goutfitter. The company has decided to borrow €22,000,000 via a euro for four years. Raid must decide between two competing loan offers from que de Paris has offered the four-year debt at euro-LIBOR + 2% with an of 1.800%. Banque de Sorbonne, however, has offered euro-LIBOR +2.5 er spread, but with no loan initiation fees up-front, for the same term and s reset the interest rate at the end of each year. D-LIBOR is currently 3.950 %. Raid's economist forecasts that LIBOR will centage points each year. Banque de Sorbonne, however, officially foreca. in trending upward at the rate of 0.250 percentage points per year. Raid G tal is 11%. Which loan proposal do you recommend for Raid Gauloises?
goutfitter. The company has decided to borrow €22,000,000 via a euro for four years. Raid must decide between two competing loan offers from que de Paris has offered the four-year debt at euro-LIBOR + 2% with an of 1.800%. Banque de Sorbonne, however, has offered euro-LIBOR +2.5 er spread, but with no loan initiation fees up-front, for the same term and s reset the interest rate at the end of each year. D-LIBOR is currently 3.950 %. Raid's economist forecasts that LIBOR will centage points each year. Banque de Sorbonne, however, officially foreca. in trending upward at the rate of 0.250 percentage points per year. Raid G tal is 11%. Which loan proposal do you recommend for Raid Gauloises?
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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Transcribed Image Text:Raid Gauloises. Raid Gauloises is a rapidly growing French sporting goods and adventure
racing outfitter. The company has decided to borrow €22,000,000 via a euro-euro floating rate
loan for four years. Raid must decide between two competing loan offers from two of its banks.
Banque de Paris has offered the four-year debt at euro-LIBOR + 2% with an up-front initiation
fee of 1.800%. Banque de Sorbonne, however, has offered euro-LIBOR +2.5% a
higher spread, but with no loan initiation fees up-front, for the same term and principal. Both
banks reset the interest rate at the end of each year.
Euro-LIBOR is currently 3.950 %. Raid's economist forecasts that LIBOR will rise by 0.500
percentage points each year. Banque de Sorbonne, however, officially forecasts euro-LIBOR to
begin trending upward at the rate of 0.250 percentage points per year. Raid Gauloises's cost of
capital is 11%. Which loan proposal do you recommend for Raid Gauloises?
...
For the Banque de Paris loan, the cash flow for Year 0 is € (Round to the nearest euro.)
ih
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