TABLE 7.2 Use the Information for Polaris Corporation to Answer the Following

question 65

Multiple Choice

TABLE 7.2
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 7.2. 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:

Corresponding K

Often refers to the equilibrium constant of a corresponding reaction, indicative of the position of equilibrium.

ΔG°

The standard Gibbs free energy change, representing the thermodynamic favorability of a reaction at standard conditions.

Corresponding K

The equilibrium constant, K, associated with a specific chemical reaction at a given temperature.

ΔG°

The change in Gibbs free energy under standard conditions, indicating the spontaneity of a reaction.