Refer to the following table. A swap deal, that lowers the cost of each company by 75 basis points, is possible if

Interest Rate SwapsXanadu Oil CorporationRex TechnologiesCredit RatingAAABBBFixed rate cost of borrowing7%9%Floating rate cost of borrowingLIBOR +0.5%LIBOR +1.0%

Rex borrows at LIBOR+1% and Xanadu borrows at LIBOR+0.5%

Xanadu borrows at 7% fixed; Rex borrows at LIBOR+1%.Then they enter into a swap deal

where Xanadu makes payments at LIBOR and receives fixed rate payments at 7.25%

Xanadu borrows at 5% fixed; Rex borrows at LIBOR+1%.Then they enter into a swap deal

where Xanadu makes payments at LIBOR and receives fixed rate payments at 5.25%

Xanadu borrows at LIBOR+0.5% and Rex borrows at the fixed rate of 7%

Xanadu borrows at 5% fixed; Rex borrows at LIBOR+1%.Then they enter into a swap deal

where Xanadu receives payments at LIBOR and makes fixed rate payments at 5.25%