Question
Dodson Co. is planning to finance an expansion of its operations by borrowing $120,000. City Bank has agreed to loan Dodson the funds. Dodson has
Dodson Co. is planning to finance an expansion of its operations by borrowing $120,000. City Bank has agreed to loan Dodson the funds. Dodson has two repayment options: (1) to issue a note with the principal due in 10 years and with interest payable annually or (2) to issue a note to repay $12,000 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 8 percent for each option.
Required | |
a. | What amount of interest will Dodson pay in year 1? |
Under Option 1:
Under Option 2:
b. | What amount of interest will Dodson pay in year 2? Under Option 1: Under Option 2: |
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