Question
Assume that you are the CFO of AmeriAuto and your company needs to borrow USD50,000,000 for a period of 5 years. Consider the following strategies
Assume that you are the CFO of AmeriAuto and your company needs to borrow USD50,000,000 for a period of 5 years. Consider the following strategies and write down the advantages and risks in each strategy.
Strategy #1: Borrow $50,000,000 for three years at a fixed rate of interest of 7%. Strategy #2: Borrow $50,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50% Strategy #3: Borrow $50,000,000 for one year at a fixed rate, and then renew the credit annually. The current one-year rate is 5%.
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