Suppose Company B owes $80 million over 5 years at LIBOR minus 20 basis points. Company B uses swaps to convert variable rate borrowings to fixed rate borrowings.

5%debt (Libor – 0.20%)

Complete the following table

Year	LIBOR rate (%)	Variable Credit	Swap (cash flow paid)	Swap (cash flow received)	Net  Flow
Year 1	%4
2 years	%4,5
3 years	%5
4 years	%6
5 years	%6,5
Total Net Cash Flow

b) Why do you think Company B prefers a flat rate loan?

Answer rating: 100% (QA)

Here is the completed table Year LIBOR rate Variable Credit Swap cash flow paid Swap cash flow recei... View the full answer