Explore BrainMass

Explore BrainMass

    Permanent assets financing

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    ABC corporation is determining whether to support $125,000 of its permanent current assets with a bank note or short-term bond. The firms bank offers a two-year note where the firm will receive $125,000 and repay $150,000 at the end of two years. The firm has the option to renew the loan at market rates. Alternatively, ABC can sell 9.5 percent coupon bonds with a 2-year maturity and $1,000 par value at a price of $950. How many percentage points lower is the interest rate on the less expensive debt instrument?

    © BrainMass Inc. brainmass.com June 3, 2020, 10:41 pm ad1c9bdddf
    https://brainmass.com/business/bond-valuation/permanent-assets-financing-243957

    Solution Preview

    ABC corporation is determining whether to support $125,000 of its permanent current assets with a bank note or short-term bond. The firms bank offers a two-year note where the firm will ...

    Solution Summary

    The solution examines permanent asset financing for ABC corporation. How many percentage points lower the interest rate is on the less expensive debt instrument is determined.

    $2.19

    ADVERTISEMENT