Exerclse 101A(Algo) Interest only versus an Installment note LO 101 Sanders Company is planning to finance an expansion of its operations by borrowing $47.900. City Bank has agreed to loan Sanders the funds. Sanders 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 $4,790 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 10 percent for each option. Required a. What amount of interest will Sanders pay in Year 1 under option 1 and under option 2? Note: Round your flinal answers to the nearest dollar amount. b. What amount of interest will Sanders pay in Year 2 under option 1 and under option 2 ? Note: Round your flual answers to the nearest dollar amount. c. Which option is more advantageous to Sanders? Option 1 Option 2 Colson Company has a line of credit with Fetleral Bank. Colson can borrow up to $322,000 at any time over the course of the Year 1 calendar year. The following table shows the prime rate expressed as an annual percentage, along with the amounts borrowed and repaid during the first four months of Year 1. Colson agreed to pay interest at an annual rate equal to 3.00 percent above the bank's prime rate. Funds are borrowed or repaid on the first day of each month. Interest is payable in cash on the last day of the month. The interest rate is applied to the outstanding monthly balance. For example. Colson pays 7.00 percent (4.00 percent +3.00 percent) annual interest on $81,100 for the month of January. Required: 0. Compute the amount of interest that Colson will pay on the line of credit for the first four months of Year 1. Note: Do not round Intermedlate calculations. Round your flinal answers to the nearest whole dollar. b. Compute the amount of Colson's liability at the end of each of the first four months. Note: Round your final answers to the nearest whole dollar. Clayton Industries has the following account balances: The company wishes to raise $30,000 in cash and is considering two financing options: Clayton can sell $30,000 of bonds payable, or it can issue additional common stock for $30,000. To help in the decision process, Clayton's management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. Required o-1. Compute the current ratio for Clayton's management. Note: Round your answers to 2 declmal places. 0.2. Compute the debt-to-assets ratio for Clayton's management. Note: Round your answers to 1 decimal place. b. Assume that after the funds are invested. EBIT amounts to $14,700. Also assume the company pays $3,700 in dividends or $3,700 in interest depending on which source of financing is used. Based on a 30 percent tax rate, determine the amount of the increase in retained earnings that would result under each financing option