On January 1, 20X1, MWB, Inc. borrowed cash by issuing a $600,000, 6-year note that specified 6% interest to be paid on December 31 of each year and the $600,000 to be paid at maturity. If the note had instead been an installment note to be paid in six equal payments at the end of each year beginning December 31, 20X1, which of the following would be true? Select one: a. The first year's interest expense would have been higher b. The annual cash payment would have been less c. The second year's interest expense would have been less than in year three d. The second year's interest expense would have been less than in year one e. The effective interest rate would have been higher.
On January 1, 20X1, MWB, Inc. borrowed cash by issuing a $600,000, 6-year note that specified 6% interest to be paid on December 31 of each year and the $600,000 to be paid at maturity. If the note had instead been an installment note to be paid in six equal payments at the end of each year beginning December 31, 20X1, which of the following would be true? Select one: a. The first year's interest expense would have been higher b. The annual cash payment would have been less c. The second year's interest expense would have been less than in year three d. The second year's interest expense would have been less than in year one e. The effective interest rate would have been higher.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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On January 1, 20X1, MWB, Inc. borrowed cash by issuing a $600,000, 6-year note that specified 6% interest to be paid on December 31 of each year and the $600,000 to be paid at maturity.
If the note had instead been an installment note to be paid in six equal payments at the end of each year beginning December 31, 20X1, which of the following would be true?
Select one:
a. The first year's interest expense would have been higher
b. The annual cash payment would have been less
c. The second year's interest expense would have been less than in year three
d. The second year's interest expense would have been less than in year one
e. The effective interest rate would have been higher.
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