Regarding Harvard business school case 'The B.F. Goodrich-Rabobank interes trate swap' is someone can answer below question?

5. Goodrich a. Compare 30-year fixed rate in the US market and the fixed rate associated with the swap. b. Compare the floating rates from the swap and to investors. c. Compare benefits from the fixed rate to the losses from the floating rates. Find the break-even Y= (X + F) i.e. what is the maximum Y?

The financing problem

Goodrich needed $50 million to fund its ongoing financial needs. In theory, it

could have merely borrowed $50 million more from its committed bank lines, with a borrowing cost

slightly above the prime rate (plus, of course, compensating balances). But it was reluctant to

consume a substantial part of its remaining short-term availability under those lines or, for that

matter, to compromise its future flexibility by borrowing in the short-intermediate-term (2-5 years)

range. It wanted to borrow longer-term, in either the 8-10 year range or perhaps in the 30-year range,

and it wanted fixed-rate money. The problem was clear, though. With the general level of interest

rates quite high and with its lowered credit rating, long-term fixed-rate money would be quite

expensive. For example, with 30-year U.S. Treasuries around 10.30% in the current, it believed it would have to pay about 13% or so for a 30 year corporate debenture.

As the first part of the transaction, Salomon Brothers underwrote and sold a B.F. Goodrich 8-

year floating-rate note in the U.S. bond market. It was generally believed that most of the note issue

was sold to a number of mutual savings banks located in major metropolitan regions. The terms of

the note were as follows:

Issuer: B. F. Goodrich

Credit Rating: BBB

Amount: $50 million

Maturity: 8 years (noncallable)

Coupons: The notes will bear interest, payable

semiannually, at an annual rate equal to the

future prevailing three-month Eurodollar

London interbank rate (LIBOR) + .50%.

On the same Monday, the Rabobank-Nederland issued an 8-year fixed-rate bond in the

Eurobond market. The terms were as follows:

Issuer: Rabobank-Nederland (the central organization)

Credit Rating: AAA

Amount: $50 million U. S. dollars

Maturity: 8 years, noncallable

Coupon: An annual coupon, fixed at 11%

The two issuers then executed a pair of bilateral swap agreements with the Morgan Guaranty

Bank as an intermediary guarantor. In particular, one swap agreement included these provisions:

B. F. Goodrich agreed to pay the Morgan bank $5.5 million once each year for 8

years to cover the 11% fixed annual coupon.

The Morgan bank agreed to pay to B. F. Goodrich 8 years of semiannual

payments, each equal to one-half (because they were semiannual) of $50 million

times a floating rate. The floating rate would be set equal to the future of

prevailing three-month London interbank rate minus a discount (LIBOR - x),

where the size of this discount was undisclosed.

The two issuers then executed a pair of bilateral swap agreements with the Morgan Guaranty Bank as an intermediary guarantor. In particular, one swap agreement included these provisions:

- B.F. GOodrich agreed to pay the Morgan bank $5.5 million once each year for 8 years to cover the 11% fixed annual coupon

- The morgan bank agreed to pay to B.F. GOodrich 8 years of semiannual payments, each equal to one-half of $50 million times a floating rate. The floating rate would be set eqaul to the future of prevailing three-month London interbank rate micus a discount (LIBOR-x), where the size of this dicsount was undisclosed.

And similarly, the other sawp agreemnt inlcuded an itentical set of provisions:

- The MOrgan bank agreed to pay the Raboabank %5.5 mIllion once each year for 8 years.

- Thte Rabobank agree to pay the Morgan bank the 8 years of semiannual payments at LIBOR -x