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QUESTION Based on the Income Statement below: Kastner and Associates, Inc. Income Statement Year Ended December 31, 2020 Kastner and Associates, Inc. is a growing
QUESTION Based on the Income Statement below: Kastner and Associates, Inc. Income Statement Year Ended December 31, 2020 Kastner and Associates, Inc. is a growing HR consulting firm that has been building its business for the last two years. With a strong client base and optimistic growth plans, this firm is now able to get a business loan from its bank with a principal amount of $90,000 and 5% annual interest rate. No principal payments will be due until five years when the whole balance is due. At that time, the firm expects to grow to a point where it will be no problem paying back the principal. The interest on its small private loan will still be $750 in 2021 , so the new bank loan would add additional interest expense for Kastner starting in 2021. If it expects its Income Before Interest and Taxes to be the same as 2020, does Kastner and Associates, Inc.'s latest income statement above support the decision to borrow with this loan? (Please pick the best answer.) Yes, since the bank loan does not require interest to be paid until the loan matures. Yes, its Earnings Before Interest and Taxes is enough to cover the total expected interest expense with the new bank loan in 2021. No, its Earnings Before Interest and Taxes is not enough to cover the total expected interest expense with the new bank loan in 2021. No, a bank loan is not appropriate for a company in this financial condition
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