A Firm Agrees to Accept Annual Payments on a $1,000,000

question 35

Multiple Choice

A firm agrees to accept annual payments on a $1,000,000 loan with a fixed interest rate of 8% in exchange for making the annual payments on a loan with floating rate payments based on LIBOR.Payments are interest only with principal due in 10 years.If LIBOR falls to 7%,the firm's net cash flow will be:

• A)$70,000.
• B)($10,000).
• C)$10,000.
• D)$80,000.

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Definitions:

LIFO

In the Last In, First Out method, the newest items in the inventory are the first to be sold.

Inventory Turnover

A financial ratio that measures the number of times a company sells and replaces its stock of goods during a given period, indicating efficiency in inventory management.

LIFO Reserve

The difference between the cost of inventory calculated under the Last-In, First-Out (LIFO) method and its cost calculated under the First-In, First-Out (FIFO) method.

Historical Cost

The original monetary value of an asset or investment at the time of its purchase, disregarding inflation over time.