The board of a company (Firm A) has agreed to pursue a new project and the Chief
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Question:
The board of a company (Firm A) has agreed to pursue a new project and the Chief Financial Officer determines that it may borrow:
- Floating at BBSW + 2.855%pa
- Fixed rate debt at 10.15%pa
The CFO of a large corporate (Firm B) learns that it may borrow:
- Floating at BBSW + 2.665%pa
- Fixed at 8.25%pa
Government debt is trading at 1.87%pa
Both CFO's happen to approach the same investment bank, you, to explore funding their requirements via a swap?
You are willing to enter into an intermediated swap with both parties, on the condition that you make 0.125% from each party of the swap transaction?
Required
Determine the swap strategy that maximises the benefit of the swap for each party, including your investment bank?
- Specify the swap cashflows?
- Calculate the borrowing costs and the benefit to each party from entering into the swap?
Related Book For
Accounting for Decision Making and Control
ISBN: 978-0078025747
8th edition
Authors: Jerold Zimmerman
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