Wicker Corporation Is Determining Whether to Support R100,000 of Its

question 78

Multiple Choice

Wicker Corporation is determining whether to support R100,000 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 R100,000 and repay R118,810 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 R1,000 face value and 2-year maturity, at a price of R973.97.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:

Cerebrovascular Accident

Also known as a stroke, it is a medical condition that occurs when the blood flow to a part of the brain is interrupted or reduced, preventing brain tissue from getting oxygen and nutrients.

Cerebral Infarct

A type of stroke caused by a blockage in the blood vessels supplying blood to the brain, leading to the death of brain tissue.

Systolic Blood Pressure

The pressure in the arteries during the contraction phase of the heart cycle.

90 MmHg

A measurement often associated with the diastolic blood pressure, indicating the pressure in the arteries when the heart rests between beats.