Raid Gauloises. Raid Gauloises is a rapidly growing French sporting goods and adventure racing outfitter. The company
Question:
Raid Gauloises. Raid Gauloises is a rapidly growing French sporting goods and adventure racing outfitter.
The company has decided to borrow €20,000,000 via a euro-euro floating rate loan for four years. Raid must decide between two competing loan offers from two of its banks.
Banque de Paris has offered the 4-year debt with an up-front initiation fee of 1.8%. Banque de Sorbonne, however, has offered a higher spread, but with no loan initiation fees up front, for the same term and principal.
Both banks reset the interest rate at the end of each year.
Euro-LIBOR is currently 4.00%. Raid’s economist forecasts that LIBOR will rise by 0.5 percentage points each year. Banque de Sorbonne, however, officially forecasts euro-LIBOR to begin trending upward at the rate of 0.25 percentage points per year. Raid Gauloises’ cost of capital is 11%. Which loan proposal do you recommend for Raid Gauloises?
Step by Step Answer:
Multinational Business Finance
ISBN: 9781292097879
14th Global Edition
Authors: David Eiteman, Arthur Stonehill, Michael Moffett