Sanders Company is planning to finance an expansion of its operations by borrowing $48,600. 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 $4,860 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 9.5 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. Under option 1 Under option 2 Amount of Interest 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. Under option 1 Under option 2 Ame Interest
Sanders Company is planning to finance an expansion of its operations by borrowing $48,600. 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 $4,860 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 9.5 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. Under option 1 Under option 2 Amount of Interest 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. Under option 1 Under option 2 Ame Interest
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Subject: acounting
Transcribed Image Text:Sanders Company is planning to finance an expansion of its operations by borrowing $48,600. 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 $4,860 of the principal each year along with the annual interest based on the unpaid principal balance.
Assume the interest rate is 9.5 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.
Under option 1
Under option 2
Amount of
Interest
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.
Under option 1
Under option 2
Amount of
Interest
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