ASO Can Borrow Money at Either a Fixed Rate of 7.5

question 198

Multiple Choice

ASO can borrow money at either a fixed rate of 7.5% or a variable rate set at prime plus 0.5% DOT can borrow money at either a variable rate of prime plus 1% or a fixed rate of 7.25% ASO prefers a fixed rate and DOT prefers a variable rate. Given this information, which one of the following statements is correct?

• A) After a swap with ASO, DOT should end up paying a fixed rate of about 7.125%
• B) DOT should end up paying the prime rate if they do an interest rate swap with ASO.
• C) Both firms will profit if they swap a 7.35% fixed rate for a prime plus 0.75% variable rate.
• D) ASO will end up paying no more than 7% as a fixed rate after a swap with DOT.
• E) ASO and DOT cannot swap interest rates in a manner that will be profitable for both firms.

Identify key skills and attributes desired in management with an emphasis on communication.

Comprehend the steps of the basic communication process and the significance of feedback.

Analyze the appropriateness of different communication media based on the Lengel-Daft Contingency Model of Media Selection.

Understand the concept of noise in communication and its various forms.

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Definitions:

Federal Income Tax

A charge imposed by the IRS on the yearly income of individuals, corporations, trusts, and various legal bodies.

Book Depreciation

The method of allocating the cost of a physical or tangible asset over its useful life for accounting and tax purposes.

Earnings and Profits

A measure used in corporate tax to assess the ability of a corporation to make distributions to its shareholders that are not considered a return of capital.

Basis

The amount of investment in property for tax purposes, used to calculate gain or loss on a sale or disposition.