Question
Sanders Company is planning to finance an expansion of its operations by borrowing $54,400. City Bank has agreed to loan Sanders the funds. Sanders has
Sanders Company is planning to finance an expansion of its operations by borrowing $54,400. 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 $5,440 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 9 percent for each option. Required: What amount of interest will Sanders pay in year 1 under option 1 and under option 2? Note: Round your final answers to the nearest dollar amount. What amount of interest will Sanders pay in year 2
Sanders Company is planning to finance an expansion of its operations by borrowing $54,400. 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 $5,440 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 9 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 final 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 final answers to the nearest dollar amount. c. Which option is more advantageous if Sanders wants to minimize costsStep by Step Solution
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