Exhibit 23.2 Use the Information Below for the Following Problem(S)

question 29

Multiple Choice

Exhibit 23.2
Use the Information Below for the Following Problem(S)
Darden Industries has decided to borrow $25,000,000.00 for six months in two three-month issues. As the Treasurer, you are concerned that interest rates will rise over the next three months and the rate upon which the second payment will be based will be undesirable. (The amount of Darden's first payment will be known at origination.) To reduce the company's interest rate exposure, you decide to purchase a 3 × 6 FRA whereby you pay the dealer's quoted fixed rate of 4.5% in exchange for receiving 3-month LIBOR at the settlement date. In order to hedge her exposure, the dealer buys LIBOR from McIntire Industries at its bid rate of 4%. (Assume a notional principal of $25,000,000.00 and that there are 60 days between month 3 and month 6.)
-Refer to Exhibit 23.2.Assuming that 3-month LIBOR is 5.00% on the rate determination day,and the contract specified settlement in advance,describe the transaction that occurs between the dealer and McIntire.

• A) The dealer is obligated to pay McIntire $61,728.40.
• B) The dealer is obligated to pay McIntire $56,389.16.
• C) McIntire is obligated to pay the dealer $56,389.16.
• D) McIntire is obligated to pay the dealer $61,728.40.
• E) None of the above

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Definitions:

Fixed Manufacturing Overhead

Costs that do not vary with the level of production output and include expenses such as rent, property taxes, and salaries for permanent staff.

Selling Price

The amount a buyer pays to acquire a product or service from a seller.

Net Income

The amount of earnings remaining after all operational, interest, and tax expenses have been deducted from total revenue, reflecting the financial health of a company.

Contribution Margin

The amount remaining from sales revenue after variable costs have been deducted, reflecting the portion of sales that helps cover fixed costs and generate profit.