The CFO of your company has asked you to review an interest rate hedging proposal that aims to help reduce the organization’s interest expenses. Your review indicates that the organization has available $30MM in cash immediately, with a specific amortization table on paying back the funds (over the next 20 years starting in Year 2). The organization’s borrowing rate is determined to be 5.0% per annum, while the implicit rate of this transaction is 5.5%. What are some of the issues you would raise to the CFO?
