How much does heather save or cost her company

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Question - 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+2.00?% per annum on $5,200,000 of debt for the next two? years, 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 now. Heather finds that she can swap her current? floating-rate payments for fixed payments of 7.007?% per annum. ? (CB Solutions' weighted average cost of capital is 12?%, which Heather calculates to be 6?% per? 6-month period, compounded? semiannually).

a. If LIBOR rises at the rate of 50 basis points per? 6-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? 6-month period, starting? tomorrow, how much does Heather save or cost her company by making this? swap?

Reference no: EM132982509

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