Instruction 8.1: For the Following Problem(s), Consider These Debt Strategies Being Considered

question 4

Multiple Choice

Instruction 8.1:
For the following problem(s) , consider these debt strategies being considered by a corporate borrower. Each is intended to provide $1,000,000 in financing for a three-year period.
• Strategy #1: Borrow $1,000,000 for three years at a fixed rate of interest of 7%.
• Strategy #2: Borrow $1,000,000 for three years at a floating rate of LIBOR + 2%, to be reset annually. The current LIBOR rate is 3.50%
• Strategy #3: Borrow $1,000,000 for one year at a fixed rate, and then renew the credit annually. The current one-year rate is 5%.
-Refer to Instruction 8.1. Which strategy (strategies) will eliminate credit risk?

• A) Strategy #1
• B) Strategy #2
• C) Strategy #3
• D) Strategies #1 and #2

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Definitions:

Divisional Structure

An organizational layout where the company is divided into semi-autonomous units or divisions, each focused on a specific product line or geographic area.

Multidivisional Structure

A form of organizational structure where a company is divided into semi-autonomous divisions, each with its own set of functional units like marketing and finance.

Matrix Structure

An organizational structure that combines both functional and divisional departmentalization together with dual lines of authority.

Divisional Departmentalization

Organizing a business into divisions, each of which is responsible for its own set of related products, services, or market sectors.