Fifteen years ago ABC Inc. took out a $100 million loan with an interest rate of 6.5 percent compounded quarterly over its forty-year life. With interest rates having risen recently, ABC is now looking to potentially refinance the loan. A) The accounting department would like to know how much interest was paid on this loan last year B) If new debt with an interest rate of 4.5 percent compounded quarterly can be raised with a 2 percent flotation cost, should they refinance this loan? C) At what interest rate would ABC begin to reconsider their decision?

Fifteen years ago ABC Inc. took out a $100 million loan with an interest rate of 6.5 percent compounded quarterly over its forty-year life. With interest rates having risen recently, ABC is now looking to potentially refinance the loan. A) The accounting department would like to know how much interest was paid on this loan last year B) If new debt with an interest rate of 4.5 percent compounded quarterly can be raised with a 2 percent flotation cost, should they refinance this loan? C) At what interest rate would ABC begin to reconsider their decision?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

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