Wicker Corporation Is Determining Whether to Support $100,000 of Its

question 126

Multiple Choice

Wicker Corporation is determining whether to support $100,000 of its permanent current assets with a bank note or a short-term bond.The firm's bank offers a two-year note where the firm will receive $100,000 and repay $118,810 at the end of two years.The firm has the option to renew the loan at market rates.As an alternative,the firm can sell its own 8.5 percent annual coupon bonds,with $1,000 face value and 2-year maturity,at a price of $973.97.Comparing the cost of the two alternatives,how many percentage points lower is the interest rate on the less expensive debt instrument?

• A) 0%;the rates are equal.
• B) 1.2%
• C) 1.0%
• D) 1.8%
• E) 0.6%

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Definitions:

Strategic Planning

A systematic process for envisioning a desired future and translating this vision into broadly defined goals or objectives and a sequence of steps to achieve them.

Leadership

The ability to guide, direct, or influence people towards achieving a common goal.

Consulting

A professional service provided by experts who advise businesses or individuals in their specialized fields.

Accountability

Accountability refers to the obligation of individuals or organizations to account for their activities, accept responsibility for them, and disclose the results in a transparent manner.