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CB Solutions. Heather? O'Reilly, the treasurer of CB? Solutions, believes interest rates are going to? rise, so she wants to swap her future floating rate interest payments for fixed rates.? Presently, she is paying LIBOR plus 2.00% per annum on $5,200,000 of debt for the next two? years, with payments due semiannually. with payments due semiannually. LIBOR is currently 4.01?% per annum. Heather has just made an interest payment? today, so the next payment is due six months from today.

Heather finds that she can swap her current floating rate payments for fixed payments of 7.005?% per annum.

(CB Solutions' weighted average cost of capital is 12?%, which Heather calculates to be 6?% per? six-month period, compounded? semiannually).

a. If LIBOR rises at the rate of 50 basis points per? six-month period, starting? tomorrow, how much does Heather save or cost her company by making this? swap?

b. If LIBOR falls at the rate of 25 basis points per? six-month period, starting? tomorrow, how much does Heather save or cost her company by making this? swap?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92843828

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