Let's turn to our financing needs. It looks like we need to raise $100 million dollars this quarter. Our bank will lend to us at 10% interest. This would be a loan that is secured by our inventory. In other words, if we don't pay, the bank can repossess our inventory. Since we are a BBB rated firm, if we sold unsecured debt, we would have to pay 12% interest. This means that the lenders could not repossess any of our assets. Clearly, we should borrow from the bank if we plan on using debt financing as the rate is cheaper. what is Reaction to preceding statement?

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Based on the information provided borrowing from the bank at a 10 interest rate seems like a more fa... View the full answer