Would carter be better off if it issued floating-rate debt


Carter Enterprises can issue floating-rate debt at LIBOR + 2% or fixed-rate debt at 10%. Brence Manufacturing can issue floating-rate debt at LIBOR + 3.1% or fixed-rate debt at 11%. Suppose Carter issues floating-rate debt and Brence issues fixed-rate debt. They are considering a swap in whcih Carter makes a fixed-rate payment of 7.95% to Brence and Brence makes a payment of LIBOR to Carter. What are the net payments of Carter and Brence if they engage in the swap? Would Carter be better off if it issued floating-rate debt and engaged in the swap? Would Brence be better off if it issued floating-rate debt or if it issued fixed-rate debt and engaged in the swap?

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Finance Basics: Would carter be better off if it issued floating-rate debt
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