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Firenza Motors (Italy), Firera motors of Italy recently took out a 4-year 6.0 million loan on a floating-rate basis. It is now worried, however, about
Firenza Motors (Italy), Firera motors of Italy recently took out a 4-year 6.0 million loan on a floating-rate basis. It is now worried, however, about rising interest costs. Although it had initially believed interest rates in the eurozone would be trending downward when taking out the loan, recent economic indicators show growing inflationary pressures. Analysts are predicting that the European Central Bank will slow monetary growth, driving interest rates up Firenzt is now considering whether to seek some protection against a rise in euro-UIBOR, and a forward rate agreement (FRA) with an insurance company. According to the agreement, Firenza would pay to the insurance company at the end of each year the clifference between its initial interest cost at LIBOR 2.50% (7.00%) and any fall in interest cost due to a fall in LIBOR. Conversely, the insurance company would pay to Firenza 70% of the difference between Firera's initial interest cost and any increase in interest costs caused by a rise in LIBOR. LIBOR is currently 4.500%. Purchase of the floating-rate agreement will cost 100,000, paid at the time of the initial loan. What are Firenza's annual financing costs now fLIBOR rises and if LIBOR falls in increments of 0.5% Firenza uses 12% as its weighind average cost of capital. Do you recommend that Firenza purchase the FRA? IT LIBOR fals 50 basis points per year, the cash flow for Year is + 5,900,000. (Round to the nearest euro.) IT LIBOR falls 50 brasis points per year, the cash flow for Year 1 ise 420,000. (Round to the nearest euro.) IF LIBOR falls 60 basis points per year, the cash flow for Your 2 is 420.000 {Round to the nearest euro) IF LIBOR falls 50 basis points per year, the cash (w for Year 3 is 420,000 (Round to the nearest euro.) IF LIBOR fals 50 basis points per year, the cash flow for Year 4 is 6,420,000" (Round to the nearest euro.) The all-in-cost of funds if LIBOR falls by 50 basis points each year is 7.494% (Round to four decimal places.) If LIBOR rises 50 basis points per year, the cash flow for Year is 5,900,000 (Round to the nearest euro) If LIBOR lisas SO basis polnts per year, the cash flow for Year 1 is 429,000 (Nound to the nearest euro. Drie en hania nie RAM than for Vannival Dant than metam Ented Firenza Motors (Italy), Firera motors of Italy recently took out a 4-year 6.0 million loan on a floating-rate basis. It is now worried, however, about rising interest costs. Although it had initially believed interest rates in the eurozone would be trending downward when taking out the loan, recent economic indicators show growing inflationary pressures. Analysts are predicting that the European Central Bank will slow monetary growth, driving interest rates up Firenzt is now considering whether to seek some protection against a rise in euro-UIBOR, and a forward rate agreement (FRA) with an insurance company. According to the agreement, Firenza would pay to the insurance company at the end of each year the clifference between its initial interest cost at LIBOR 2.50% (7.00%) and any fall in interest cost due to a fall in LIBOR. Conversely, the insurance company would pay to Firenza 70% of the difference between Firera's initial interest cost and any increase in interest costs caused by a rise in LIBOR. LIBOR is currently 4.500%. Purchase of the floating-rate agreement will cost 100,000, paid at the time of the initial loan. What are Firenza's annual financing costs now fLIBOR rises and if LIBOR falls in increments of 0.5% Firenza uses 12% as its weighind average cost of capital. Do you recommend that Firenza purchase the FRA? IT LIBOR fals 50 basis points per year, the cash flow for Year is + 5,900,000. (Round to the nearest euro.) IT LIBOR falls 50 brasis points per year, the cash flow for Year 1 ise 420,000. (Round to the nearest euro.) IF LIBOR falls 60 basis points per year, the cash flow for Your 2 is 420.000 {Round to the nearest euro) IF LIBOR falls 50 basis points per year, the cash (w for Year 3 is 420,000 (Round to the nearest euro.) IF LIBOR fals 50 basis points per year, the cash flow for Year 4 is 6,420,000" (Round to the nearest euro.) The all-in-cost of funds if LIBOR falls by 50 basis points each year is 7.494% (Round to four decimal places.) If LIBOR rises 50 basis points per year, the cash flow for Year is 5,900,000 (Round to the nearest euro) If LIBOR lisas SO basis polnts per year, the cash flow for Year 1 is 429,000 (Nound to the nearest euro. Drie en hania nie RAM than for Vannival Dant than metam Ented
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