The management of Poliwog Financial plans to borrow $50,000 to carry out current operations. Two repayment options are available. The appropriate interest rate is 8%.

Option 1: The Company may repay the amount borrowed by making four equal annual payments, the first one due in one year.
Option 2: The Company may pay just the interest annually, and then pay the entire amount of $50,000 at the end of four years.

Required
A. Identify the amount of the annual payment required under Option 1 and the amount of the required annual interest payment under Option 2.
B. Identify the total cash outflows and the total interest expense incurred for the four years under each option.
C. Explain why there is a difference in the total cash outflow and total interest expense between the two plans.
D. Which plan would you recommend to the company?