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tw1gg tw1gg
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9 months ago
A company is planning to raise $2 million to finance a new plant. Which statement regarding the cost of debt is true?


▸

The company would prefer to issue a bond without a call provision if its management thinks that interest rates are almost certain to decrease in the foreseeable future.



▸

If two tiers of debt are used (with one senior and one subordinated debt class) to raise the $2 million, the senior debt will carry ahigher interest rate.



▸

If debt is used to raise the $2 million, with $0.7 million as first mortgage bonds on the new plant and $1.3 million as debentures, the interest rate on the first mortgage bonds would be lower than it would be if the entire $2 million were raised by selling first mortgage bonds.



▸

If debt is used to raise the $2 million, the cost of the debt would be lower if the debt were in the form of an unsecured term loan rather than a mortgage bond.

Textbook 
Financial Management: Theory and Practice

Financial Management: Theory and Practice


Edition: 4th
Authors:
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andratandrat
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9 months ago
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tw1gg Author
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9 months ago
Thanks
Holly72492
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Yesterday
Thanks for your help!!
klyn
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2 hours ago
Good timing, thanks!
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