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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