Sanders Co. is planning to finance an expansion of its operations by borrowing $47.200. 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 $4720 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? (Round your final answers to the nearest dollar amount.) Amount of Interest Under option 1 Under option 2 b. 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.) Amount of Interest Under option 1 Under option 2 c. Which option is more advantageous to Sanders? Option 1 Option 2 Dan Dayle started a business by issuing an $89,000 face value note to First State Bank on January 1 Year 1 The note had an 6 percent annual rate of interest and a five-year term Payments of $21.128 are to be made each December 31 for five years. Required .. What portion of the December 31, Year 1 payment is applied to interest expense and principal? Interest expense Principal b. What is the principal balance on January 1 Year 22 Principal balance c. What portion of the December 31, Year 2. payment is applied to interest expense and principal? (Round your answers to the nearest dollar amount.) Interest expense Principal Clayton Industries has the following account balances: Current assets rent assets $ 22,00 71. Current liabilities Noncurrent liabilities Stockholders equity $ 13, 55.00 29,00 The company wishes to raise $32,000 in cash and is considering two financing options: Clayton can sell $32,000 of bonds payable, or it can issue additional common stock for $32,000. 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 6.1. Compute the current ratio for Clayton's management. (Round your answers to 2 decimal places.) Current Ratio Currently bonds and I stock issued .-2. Compute the debt-to-assets ratio for Clayton's management. (Round your answers to 1 decimal place.) Debt to Assets Ratio b. Assume that after the funds are invested. EBIT amounts to $19,500. Also assume the company pays $4,300 in dividends or $4.300 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 Retained Earnings Bonds
