$1.$ Why is Williams considering a $$900$ million one$-$year loan from Warren Buffett and Lehman Brothers? What cash payments will the loan require assuming interest is paid quarterly in cash and the loan itself is fully repaid in one year? What is the actual promised rate of return on this term loan?

a$.[$Hint: Compute the loan$$s Yield to Maturity. This can be done by computing the $$Internal Rate of Return$($IRR$)$ of the loan$$s quarterly cash flows and then annualizing the IRR $($see the note, $$Bond Analysis: Yield to Maturity$).$ You may use the Yield to Maturity Calculation Template provided here.$]$

$2.$ Is repayment of the loan a sure thing? Conceptually, if you had all the information you needed, how might you calculate the expected rate of return on a loan like this; that is$,$ the rate of return that might actually be realized taking into account the possibility of default on the loan? Is the expected rate of return on a loan higher, lower, or equal to the promised rate of return on the loan?

$3.$ The loan has a number of covenants and pre$-$conditions, which are listed in Exhibit $1.$ Can you explain what each requires and why the lenders have put the requirement into the agreement? What happens if a covenant is violated?

$4.$ As the CEO or CFO of Williams, would you recommend accepting the proposed financing offer? Why or why not?

$5.$ How did Williams get into this predicament? What might they have done differently to avoid this kind of situation? Why aren't better financing alternatives available?