Good Company Prefers Variable to Fixed Rate Debt Given This Information:
A) an Interest Rate Swap Will Probably

question 53

Multiple Choice

Good Company prefers variable to fixed rate debt. Bad Company prefers fixed to variable rate debt. Assume the following information for Good and Bad Companies:
$$\begin{array} { l c c }&\underline{ \text { Fixad Fata Gond } }& \underline{\text { Variable Fite Bond }} \\ \text { Gaod Campany } &10\%&\text { LIBOR } + 1 \% \\\text { Bad Campany } & 12 \% &\text { LIBOR } + 1.5 \%\\ \\\end{array}$$
Given this information:

• A) an interest rate swap will probably not be advantageous to Good Company because it can issue both fixed and variable debt at more attractive rates than Bad Company.
• B) an interest rate swap attractive to both parties could result if Good Company agreed to provide Bad Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%.
• C) an interest rate swap attractive to both parties could result if Bad Company agreed to provide Good Company with variable rate payments at LIBOR + 1% in exchange for fixed rate payments of 10.5%.
• D) none of the above

Analyze the effects of intra-group transactions on consolidated financial statements.

Grasp the preparation and distinctions within consolidated statements of cash flows.

Understand the mechanics and effects of share transactions and acquisitions on subsidiary control and parent company investments.

Identify variables affecting investments in common and preferred stock between parent and subsidiary entities.

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Definitions:

Enlightenment Thinking

A philosophical movement of the 18th century, emphasizing reason, individualism, and skepticism towards traditional doctrines.

Stamp Act

A 1765 British law imposing a tax on all paper documents in the American colonies, leading to widespread protest and contributing to the American Revolutionary movement.

Parliamentary Authority

A set of rules that governs how procedures are carried out in a deliberative assembly, especially within a legislature following the parliamentary system.

Indirect Tax

A tax collected by an intermediary (such as a retailer) from the person who bears the ultimate economic burden of the tax (such as the consumer).