Question
Sanders Co. is planning to finance an expansion of its operations by borrowing $54,500. City Bank has agreed to loan Sanders the funds. Sanders has
Sanders Co. is planning to finance an expansion of its operations by borrowing $54,500. 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 $5,450 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 12 percent for each option.
Required
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What amount of interest will Sanders pay in year 1 under option 1 and under option 2? (Round your final answers to the nearest dollar amount.)
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What amount of interest will Sanders pay in year 2 under option 1 and under option 2? (Round your final answers to the nearest dollar amount.)
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