Johnson Industries Is Currently Paying a Variable Rate Loan and Desires

question 52

Multiple Choice

Johnson Industries is currently paying a variable rate loan and desires greater certainty with regard to their loan payments. Refinancing is currently not available so they decide to pursue an interest rate swap agreement. Which of the following will help Johnson stabilize their anticipated cash outflows? Enter into an agreement to:

• A)Receive LIBOR and pay a quoted rate.
• B)Receive a quoted rate and pay LIBOR + 1.50%.
• C)Receive LIBOR and pay LIBOR + 1.50%.
• D)None of the above will help Johnson Industries pay a fixed amount for their obligations.

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Definitions:

Cash Flows

The total amount of money being transferred into and out of a business, especially as affecting liquidity.

Stock Dividend

A distribution of shares of stock to its stockholders.

Statement of Cash Flows

A financial statement showing the inflows and outflows of cash within a company over a specific period.

Declaration

A formal or explicit statement, announcement, or assertion.