Discussion 7

Your company, large and currently with a good credit rating, needs $10 million for the next 5 years to finance a new long-term capital project. As a CFO, you are considering two financing alternatives: (a) issuing commercial paper (CP) with a maturity of 9 months (maximum) and rolling it over for the next 5 years; and (b) 5-year term loan at a fixed interest rate through an insurance company.

Discuss the pros and cons of issuing CP relative to borrowing the term loan to finance the new project.  Assume that the corporate bond yield curve is currently a normal, upward slopping yield curve.

Instructions:

Please post your initial response by 23:59 EST Day 3 of the Week, and comments on the posts of at least two classmates by 23:59 EST Due Date.

You must first post your own response directly to the Discussion Topics by Day 3 before accessing other students’ responses. In addition, you should post at least TWO thoughtful and substantive responses to other classmates’ answers/comments by the due date in order to earn 5 points for each Discussion Topic. A mere “Yes, I agree” or “No, I don’t agree” type of responses will not be given any credit.

Additional bonus credit may be given to substantive responses reflecting additional research with sources of information clearly identified as they are particularly valued and enrich our online learning.

Concluding comments on each Discussion Topic will be posted on the Discussion folder after due date.