The Following Statement Is to Be Used in Answering Questions

question 12

Multiple Choice

The following statement is to be used in answering questions
Axil Corp. has not tapped the Deutsche mark public debt market because of concern about a likely appreciation of that currency and only wishes to be a floating rate dollar borrower, which it can be at LIBOR + 1%. Bevel Corp. strongly prefers fixed rate DM debt, but it must pay 1.5% more than the 6 1/4% coupon that Axil's DM notes would carry. Bevel, however, can obtain Eurodollars at LIBOR + ½%.
-is the maximum possible cost savings to Axil from engaging in a currency swap with Bevel?

• A) 1%
• B) 75%
• C) 2%
• D) 1.25%

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Definitions:

Depreciation

The process of allocating the cost of a tangible asset over its useful life, representing how much of the asset's value has been used up.

Accounts Payable

A liability to a creditor, usually for purchases of goods and services.

Net Working Capital

Net Working Capital is a financial metric that measures a company's ability to meet its short-term obligations with its short-term assets.

Current Assets

Assets that are expected to be converted into cash or used up within one year or one business cycle, whichever is longer, such as cash, inventory, and receivables.