This is a free-response question, which will be graded after all HW submissions are in. Your HW grade will not reflect these 5 points until this portion is graded by the TA's

Prompt:

KASE is in need of $300,000 to build a new prototype. Upon looking at its options, it finds it can get $300,000 in one of two ways:

• On 1/1/20X1, issuing a $300,000 of 2.5%, 4-year bond, dated 1/1/20X1, which matures 1/1/20X5, and must pay interest twice a year (semi-annually) every first of July and first of January
• On 1/1/20X1, borrowing $300,000 on a 6-year, 5.5% installment note payable. The terms of the note require KASE to pay 6 equal payments each December 31 for 6 years

Question:

If KASE wanted the most pre-tax Income Statement profit over 6 years, which way would she choose, and why?

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