TABLE 8.2 Use the Information for Polaris Corporation to Answer the Following

question 53

Multiple Choice

TABLE 8.2
Use the information for Polaris Corporation to answer the following question(s) .
Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 1.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%

-Refer to Table 8.2.If the LIBOR rate falls to 3.00% after the first year what will be the all-in-cost (i.e.the internal rate of return) for Polaris for the entire loan?

• A)4.00%
• B)4.50%
• C)5.25%
• D)5.60%

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Definitions:

Executory

Pertaining to a contract, a term describing obligations that have not yet been performed by one or more parties.

Express Contract

A written or spoken agreement in which all terms are explicitly stated.

Contract Elements

The essential components required for a legally binding contract, including offer, acceptance, consideration, and mutual consent.

Bilateral Contract

An agreement containing mutual promises, in which each party commits to performing acts or refraining from actions.