Raid Gauloises. Raid Gauloises is a rapidly growing French sporting goods and adventure racing outfitter. The company

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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?

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Multinational Business Finance

ISBN: 9781292097879

14th Global Edition

Authors: David Eiteman, Arthur Stonehill, Michael Moffett

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