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Net borrowing cost and first-year cash flows of treasurer

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Reference no: EM132558108

You are the treasurer of a company with a 4-year, $30 million FRN outstanding at LIBOR. You are concerned about rising interest rates in the short term and would like to refinance at a fixed rate for the next two years.

A swap dealer arranges a 2-year plain vanilla interest rate swap with annual payments in which you pay a fixed rate of 7.2% and receive LIBOR.

Compute net borrowing cost and first-year cash flows of treasurer if 1-Year LIBOR stands at 6.9% and 8.2%.

Reference no: EM132558108

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