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Homework answers / question archive / ABC Corporation is determining whether to support $150,000 of its permanent current assets with a bank note or a short-term bond

ABC Corporation is determining whether to support $150,000 of its permanent current assets with a bank note or a short-term bond

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ABC Corporation is determining whether to support $150,000 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 $150,000 and repay $175,000 at the end of two years. The firm has the option to renew the loan at market rates.l Alternatively, ABC can sell 8.5% 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?

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