Reference no: EM132629881

Question - Siemens AG, the large German electronics company, is looking to raise $500 million for the next five years.

Bank of America and Deutsche Bank have come up with competing bids for the mandate to syndicate a $500 million Eurodollar loan for Siemens. Their proposals are as follows:

Principal $0.5 billion $0.5 billion

Maturity 5 years 5 years

Reset period LIBOR + 0.25% LIBOR + 0.375%

Interest rate every six months every six months

Syndication fee 1.125% 0.75%

Required -

1. What are the net proceeds to Siemens from each of these syndicated loan proposals?

2. Assuming that six-month LIBOR is currently at 4.35%, what is the effective annual interest cost to Siemens for the first six months of each loan?

3. Which of these two loans would you select on the basis of cost, all else being equal?

4. What other factors might you consider in deciding between these two loan proposals?