What the total net payment is for each company

Assignment Help Finance Basics

Reference no: EM131923278

Question: US Co., Inc. is planning to expand by building a €106.00 million ($106 million) facility in Spain. It can borrow dollars or euros at 6.25% the market.

Irish Co., Ltd. is planning a $106 million capital investment in the US. It can borrow euros at 5.50% or dollars at 5.75% in the market.

a. Explain what a swap broker would recommend each company do so the swap broker can structure a parallel loan arrangement with each company giving each a better net loan deal than it can get in the market, and the swap broker can realize a profit. Indicate

(1) which loan each company should obtain in the market, what the terms of the loan

(2) from each company to the swap broker and

(3) from the swap broker to each company should be,

(4) what the total net payment is for each company (as a percent of the principal), and

(5) the profit the swap broker realizes on each payment (in dollars or euros).

b. Specify the equation for a swap that will replace the parallel loan arrangement with each company in part a. (Standard notation for an interest rate swap is: notional principal*(interest rate in dollars - rate in euros*exchange ratet (in dollars per euro), or notional principal*( interest rate in euros - rate in dollars*exchange ratet (in euros per dollar).

Reference no: EM131923278

Questions Cloud

What is conventional arbitration : What is conventional arbitration? How do the union and firm take into account the arbitrator's behavior when deciding which wage offers to put on the table?

How much is the revenue did you earn : You run a hotel with 200 rooms. Fixed daily cost is $1500 which includes staff salary and property charges, maintenance cost of hospital is additional $300.

What is ben gross income for tax purposes : The cost of the paint Ben used was $800. What is Ben's gross income for tax purposes from the above events

Describe the wage-employment outcome in a model of monopoly : Describe the wage-employment outcome in a model of monopoly unionism. Explain why (and in what sense) this wage-employment outcome is inefficient.

What the total net payment is for each company : US Co., Inc. is planning to expand by building a €106.00 million ($106 million) facility in Spain. It can borrow dollars or euros at 6.25% the market.

Why does the ec sometimes supply butter and cheese : Why does the EC sometimes supply butter and cheese at a reduced price to certain targeted groups such as senior citizens?

How could the tax position of the parties be improved : Elisa and Clyde pay $8,000 in wages to Boyd, a part-time employee. How could the tax position of the parties be improved

What is the best estimate of stock current intrinsic value : NBX just paid a dividend of D0 = $1.00. Analysts expect the company's dividend to grow by 30% this year, by 10% in Year 2, and at a constant rate of 5% in Year.

How relevant is comment to the economic effect of population : With every mouth God sends a pair of hands. How relevant is this comment to the economic effects of population expansion in developing countries?

User Account

All Pages