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Part $1$

Raid Gauloises. Raid Gauloises is a rapidly growing French sporting goods and adventure racing outfitter. The company has decided to borrow euro $22$ comma $000$ comma $000$ 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$$ four$-$year debt at $$euro$-$LIBORplus$2\%$ with an$$ up$-$front initiation fee of $1\mathrm{.}800\%.$ Banque de$$ Sorbonne, however, has offered $$euro$-$LIBORplus$2\mathrm{.}5\%$ a higher$$ 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.

$$Euro$-$LIBOR is currently $4\mathrm{.}000\%.$Raid$\text{'}$s economist forecasts that LIBOR will rise by $0\mathrm{.}500$ percentage points each year. Banque de$$ Sorbonne, however, officially forecasts$$ euro$-$LIBOR to begin trending upward at the rate of $0\mathrm{.}250$ percentage points per year. Raid$$ Gauloises's cost of capital is $11\%.$ Which loan proposal do you recommend for Raid$$ Gauloises?