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XXX Manufacturing and YYY Products both seek funding at the lowest possible cost. XXX would...

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Finance

XXX Manufacturing and YYY Products both seek funding at the lowest possible cost. XXX would prefer the flexibility of floating rate borrowing, while YYY wants the security of fixed rate borrowing. XXX wants floating rate debt, so it could borrow at LIBOR+1%. However it could borrow fixed at 7% and swap for floating rate debt. YYY wants fixed rate, so it could borrow fixed at 11%. However it could borrow floating at LIBOR+3% and swap for fixed rate debt. If the cost saving for XXX is 40% of the total, YYY 40% and swap bank is 20% of the total cost savings, show all your calculations and draw a diagram.

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