Yosemite Corporation has an outstanding debt of $10.03 million on which it pays a 5 percent fixed interest rate annually. Yosemite justmade its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over thenext three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-yearinterest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 4.2 percent, and receive a 3.7 percent fixed rateon $10.03 million notional principal. Suppose that LIBOR turns out to be 3.6 percent in one year and 3.3 percent in two years. IncludingInterest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments for thenext three years?Note: Negative values should be indicated by parentheses.Answer is complete but not entirely correct.NetInterestPaymentsYear 11$ (180,540)Year 21$ (120,360)Year 3$ (90,270)

References:Brealey, R. A., Myers, S. C., & Allen, F. (2014). Principles of corporate finance.…

Answered: Yosemite Corporation has an outstanding…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Niagular Corp. needs to take out a one-year bank loan of $450,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 11% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 8% add-on interest to be repaid in 12 equal monthly installments. Based on a 360-day year, what will be the monthly payment for each loan for November? (Hint: Remember that November has 30 days.) Value Simple interest monthly payment Add-on interest monthly payment Choose the answer that best evaluates the following statement: Mall Toys Co1 needs to borrow $10,000,000. The company has been offered both simple interest and add-on interest loans. The add-on interest loan has a significantly lower interest rate than the simple interest loan. O The company should accept the add-on interest loan, because it will be paying less money in interest due to the lower interest rate. O The company needs to…
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Resty Corporation needs P400,000 additional financing. The company is considering the choice of financing with a bank or a factor. The bank loan carries a 20 percent interest rate on a discount basis with a required compensating balance of 16 percent. The factor charges a 3 percent commission on invoices purchased monthly. The interest rate associated with these invoices is 11 percent with interest deductible in advance. If a factor is used, there will be a monthly savings of P1,500 per month in credit department costs. Further, the expense of an uncollectible account of 2 percent on the factored receivables will not exist. (A) What amount of principal must the company borrow from the bank to receive P400,000 in proceeds? (B) What amount of accounts receivable must be factored to net the firm P400,000? choose the bullet with the correct answer (A) P325,000.00 and (B) P265,116.00 (A) P525,000.00 and (B) P465,116.00 (A) P525,000.00 and (B) P265,116.00 (A) P625,000.00 and (B)…
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Consider this case: Gizmonic Institute Corp. needs to take out a one-year bank loan of $400,000 and has been offered loan terms by two different banks. One bank has offered a simple interest loan of 9% that requires monthly payments. The loan principal will be paid back at the end of the year. Another bank has offered 6% add-on interest to be repaid in 12 equal monthly installments. A. Based on a 360-day year, what will be the monthly payment for each loan for November? (Hint: Remember that November has 30 days.) Value Simple interest monthly payment Add-on interest monthly payment Choose the answer that best evaluates the following statement: B. Mall Toys Co1 always prefers simple interest loans over add-on interest loans because even if the interest rate is higher on the simple interest loan, its monthly payment is lower. (Options Below) The company needs to be sensitive to interest rate differences between loan types and take them…
Perpetualcold Refrigeration Company (PRC) can borrow funds at an interest rate of 11.10% for a period of five years. Its marginal federal-plus-state tax rate is 35%. PRC'S after-tax cost of debt is 7.22% (rounded to two decimal places). At the present time, Perpetualcold Refrigeration Company (PRC) has 10-year noncallable bonds with a face value of $1,000 that are outstanding. These bonds have a current market price of $1,495.56 per bond, carry a coupon rate of 10%, and distribute annual coupon payments. The company incurs a federal-plus-state tax rate of 35%. If PRC wants to issue new debt, what would be a reasonable estimate for its after-tax cost of debt (rounded to two decimal places)? (Note: Round your YTM rate to two decimal place.) 3.06% 2.30% 2.55% 2.04%
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On January 1, 2002, Cougar Company received a two-year $500,000 loan. The loan calls for payments to made at the end of each year based on the prevailing market rate at January 1 of each year. The interest rate at January 1, 2002, was 10 percent. Aggie company also has a two-year $500,000 loan, but Aggie's loan carries a fixed interest rate of 10 percent. Cougar Company does not want to bear the risk that interest rates may increase in year two of the loan. Aggie Company believes that rates may decrease and they would prefer to have variable debt. So the two companies enter into an interest rate swap agreement whereby Aggie agrees to make Cougar's interest payment in 2003 and Cougar likewise agrees to make Aggie's interest payment in 2003. The two companies agree to make settlement payments, for the difference only, on December 31, 2003. If the interest rate on January 1, 2003 is 8 percent, what will be Cougar's settlement payment to/from Aggie? On January 1, 20x1, ABC Co. acquired 60%…

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