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Business, 13.08.2021 01:50 capricorn0115

Polaris is taking out a $5,000,000 two-year loan at a variable rate of LIBOR plus 2.00%. The LIBOR rate will be reset each year at an agreed upon date. The current LIBOR rate is 4.00% per year. The loan has an upfront fee of 2.00%. Loan Interest Rates Year 0 Year 1 Year 2
LIBOR (Floating) 4.00% 4.00% 4.00%
Spread (Fixed) 1.00% 1.00% 1.00%
Total Interest Payable 5.00% 5.00% 5.00%
Interest Cash Flows on
Loan LIBOR (Floating) ($200,000) ($200,000)
Spread (Fixed) ($50,000) ($50,000)
Total Interest ($250,000) ($250,000)
Loan Proceeds
(Repayment) $4,900,000 ($5,000,000)
Total Loan Cash Flows $4,900,000 ($250,000) ($5,250,000)
What is the all-in-cost (i. e., the internal rate of return) of the Polar loan including the LIBOR rate, fixed spread and upfront fee?

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