In a warehouse arrangement, the inventory that serves as collateral for the loan is stored in...

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In a warehouse arrangement, the inventory that serves as collateral for the loan is stored in either a public warehouse or a field warehouse. Distinguish the two types of warehouse arrangement. (4 marks) b. Omega Technology needs to borrow $100 million in cash. Currently it can borrow short term at a spread of 1.5% over LIBOR. Alternatively, Omega Technology can issue 10-year, fixed-rate bonds at the yield of 9.5%. Current 10- year interest rate swaps are quoted at the LIBOR rate versus 7.5% fixed rate. Omega Technology is expecting interest rates to increase over the next few years, so it is not comfortable with the interest rate risk associated with using short- term debt. Omega Technology management is confident that its credit rating is likely to improve in the near future. How can Omega Technology benefit from the expected improvement in its credit rating without being exposed to refinancing risk? What is Omega Technology's effective borrowing rate? (3 marks) In a warehouse arrangement, the inventory that serves as collateral for the loan is stored in either a public warehouse or a field warehouse. Distinguish the two types of warehouse arrangement. (4 marks) b. Omega Technology needs to borrow $100 million in cash. Currently it can borrow short term at a spread of 1.5% over LIBOR. Alternatively, Omega Technology can issue 10-year, fixed-rate bonds at the yield of 9.5%. Current 10- year interest rate swaps are quoted at the LIBOR rate versus 7.5% fixed rate. Omega Technology is expecting interest rates to increase over the next few years, so it is not comfortable with the interest rate risk associated with using short- term debt. Omega Technology management is confident that its credit rating is likely to improve in the near future. How can Omega Technology benefit from the expected improvement in its credit rating without being exposed to refinancing risk? What is Omega Technology's effective borrowing rate? (3 marks)

Answer rating: 100% (QA)

a Public warehouses are facilities that store goods for various companies They are regulated by the ... View the full answer