TABLE 9.1 Use the Information for Polaris Corporation to Answer Following Question(s)

question 7

Multiple Choice

TABLE 9.1
Use the information for Polaris Corporation to answer 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 9.1. If the LIBOR rate jumps to 5.00% 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)5.25%
• B)5.50%
• C)6.09%
• D)6.58%

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Definitions:

Financial Statements

Formal records that outline the financial activities and condition of a business, including the balance sheet, income statement, and cash flow statement.

Unusual Item

A significant transaction or event that is infrequent in nature, distinct from the ordinary activities of the business.

Current Operations

Relates to the primary activities that a business performs to earn revenue within its normal business cycle.

Accounting Methods

Systems that companies use to record their financial transactions, such as cash basis and accrual basis accounting.