te Corporation has an outstanding debt of $1 s annual interest payment and has three year ree years and that floating-rate debt will allow rate swap with annual payments in which You $10.2 million notional principal. Suppose that ng interest payments on Yosemite's outstandin next three years? Hegative values should be indicated by pare Net Interest Payments

Fundamentals Of Financial Management, Concise Edition (mindtap Course List)
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ISBN:9781337902571
Author:Eugene F. Brigham, Joel F. Houston
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Chapter5: Time Value Of Money
Section: Chapter Questions
Problem 27P
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Problem 5-15
Yosemite Corporation has an outstanding debt of $10.2 million on which it pays a 7 percent fixed interest rate annually. Yosemite just
made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the
next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year
interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 5.9 percent, and receive a 5.4 percent fixed
rate on $10.2 million notional principal. Suppose that LIBOR turns out to be 5.3 percent in one year and 5 percent in two years.
Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments
for the next three years?
Note: Negative values should be indicated by parentheses.
Year 1
Year 2.
Year 3
Net Interest
Payments
Transcribed Image Text:Problem 5-15 Yosemite Corporation has an outstanding debt of $10.2 million on which it pays a 7 percent fixed interest rate annually. Yosemite just made its annual interest payment and has three years remaining until maturity. Yosemite believes that interest rates will fall over the next three years and that floating-rate debt will allow it to reduce its overall borrowing costs. A bank offers Yosemite a three-year interest rate swap with annual payments in which Yosemite will pay LIBOR, currently at 5.9 percent, and receive a 5.4 percent fixed rate on $10.2 million notional principal. Suppose that LIBOR turns out to be 5.3 percent in one year and 5 percent in two years. Including interest payments on Yosemite's outstanding debt and payments on the swap, what will be Yosemite's net interest payments for the next three years? Note: Negative values should be indicated by parentheses. Year 1 Year 2. Year 3 Net Interest Payments
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