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

question 12

Multiple Choice

Wicker Corporation is determining whether to support $100,000 of its permanent working capital with a bank note or a short-term bond. The firm's bank offers a two-year note for which 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. Alternatively, Wicker can sell 8.5 percent annual coupon bonds with a 2-year maturity and $1,000 par value at a price of $973.97. How many percentage points lower is the interest rate on the less expensive debt instrument?

• A) 0.0%
• B) 1.2%
• C) 1.0%
• D) 1.8%
• E) 0.6%

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Definitions:

1865

Signifies the year marked by significant events like the end of the American Civil War and the abolition of slavery in the United States following the 13th Amendment.

United States

A country located in North America, known for its significant impact on global finance, culture, and politics.

Population Doubled

A demographic condition where the number of individuals in a specific area or the world has increased to twice its size within a certain period.

1789

The year notable for the start of the French Revolution, marking significant changes in France and influencing revolutions globally.