Consider the Borrowing Rates for Parties a AndB

question 48

Essay

Consider the borrowing rates for Parties A andB. A wants to finance a $100,000,000 project at a FIXED rate. B wants to finance a $100,000,000 project at a FLOATING rate. Both firms want the same maturity, 5 years.

---

Definitions:

Minimum Cash Balance

The lowest amount of cash that a company or individual seeks to maintain on hand to meet immediate expenses.

Raw Material

Basic materials used in the production process, which are transformed into finished goods.

Finished Goods

Units of product that have been completed but not yet sold to customers.

Work in Process

Inventory items that are in the process of being produced but are not yet complete, representing a stage between raw materials and finished goods.