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Questions: General Mills (GIS) is major player in the ready-to-eat cereal market with 2016 revenue of $16.6B and earnings after taxes of $1.7B. The firm has approximately $7B of lGeneral Mills (GIS) is major player in the ready-to-eat cereal market with 2016 revenue of $16.6B and earnings after taxes of $1.7B. The firm has approximately $7B of long-term debt, including a $1.15B issue due to mature 2/15/19. These bonds have a 5.65% coupon and they are selling at 106.7, for a YTM of 1.93%. These bonds can be retired today at 108. GIS would raise the funds to pay off the bonds by borrowing Euros from the Commerzbank AG of Frankfort at an annual interest rate of 1.5%, but the rate is variable (one-month LIBOR + 50 basis points). The current exchange rate is $1.0577/Euro. The one year forward rate is $1.0541 and the two year forward rate is $1.0505 per Euro.
[A] How much would GIS have to pay to pay to retire all of the bonds due 2/15/19?
[B] How many Euros would GIS have to borrow at the current spot rate in order to retire all of the bonds?
[C] If GIS paid interest annually, what would the Euro cost be each year?
[D] What would be the US$ value of the payments made to Commerzbank AG?
[E] Should GIS borrow the Euros to pay off these bonds (be specific about the why)?
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Was there any information or perspective shared that a competitor could benefit from?
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