There are two firms with different borrowing rates firm A can borrow floating at LIBOR + 0.5%; or fixed at 10.5%; firm B can borrow floating at LIBOR + 1% and fixed 11%. Firm A will issue floating rate, but it wants fixed rate. Firm B wants floating rate, but it will issue fixed rate. Firm B also makes an additional side payment of 0.7% to firm A.

1. With the interest rate swap, whats the final cash flow for A and B, respectively
2. If the payment is 0.3% instead of 0.7% , should they still take the swap or not? Why?