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Which loan proposal do you recommend for raid gauloises

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Question: Raid Gauloises. Raid Gauloises is a rapidly growing French sporting goods and adventure racing outfitter. The company has decided to borrow €20,000,000 via a euro-euro floating rate loan for four years. Raid must decide between two competing loan offers from two of its banks. Banque de Paris has offered the 4-year debt with an up-front initiation fee of 1.8%. Banque de Sorbonne, however, has offered a higher spread, but with no loan initiation fees up front, for the same term and principal. Both banks reset the interest rate at the end of each year. Euro-LIBOR is currently 4.00%. Raid's economist forecasts that LIBOR will rise by 0.5 percentage points each year. Banque de Sorbonne, however, officially forecasts euro-LIBOR to begin trending upward at the rate of 0.25 percentage points per year. Raid Gauloises' cost of capital is 11%. Which loan proposal do you recommend for Raid Gauloises?

Reference no: EM131679511

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