Raid Gauloises is a rapidly growing French sporting goods and adventure racing outfitter. The company has decided to borrow euro 20 comma 000 comma 00020,000,000 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 four-year debt at euro-LIBOR +2 % with an up-front initiation fee of 1.800 %.

Banque de Sorbonne, however, has offered euro-LIBOR +2.5 %, 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 currently4.000 %. Raid's economist forecasts that LIBOR will rise by0.500 percentage points each year. Banque de Sorbonne, however, officially forecasts euro-LIBOR to begin trending upward at the rate of 0.250 percentage points per year. Raid Gauloises's cost of capital is 11 %.

Which loan proposal do you recommend for Raid Gauloises?

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 four-year debt at euro-LIBOR + 2% with an up-front initiation fee of 1.800%. Banque de Sorbonne, however, has offered euro-LIBOR + 2.5% 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 4.000%. Raid's economist forecasts that LIBOR will rise by 0.500 percentage points each year. Banque de Sorbonne, however, officially forecasts euro-LIBOR to begin trending upward at the rate of 0.250 percentage points per year. Raid Gauloises's cost of capital is 11%. Which loan proposal do you recommend for Raid Gauloises? For the Banque de Paris loan, the cash flow for Year 0 is 19640000 (Round to the nearest euro