Sanders Co. is planning to finance an expansion of its operations by borrowing $52,100. 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 $5,210 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 8.5 percent for each option. What amount of interest will Sanders pay in year 1 under option 1 and under option 2? What amount of interest will Sanders pay in year 2 under option 1 and under option 2?

Sanders Co. is planning to finance an expansion of its operations by borrowing $52,100. 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 $5,210 of the principal each year along with the annual interest based on the unpaid principal balance. Assume the interest rate is 8.5 percent for each option. What amount of interest will Sanders pay in year 1 under option 1 and under option 2? What amount of interest will Sanders pay in year 2 under option 1 and under option 2?

CONCEPTS IN FED.TAX.,2020-W/ACCESS

20th Edition

ISBN:9780357110362

Author:Murphy

Publisher:Murphy

Chapter5: Introduction To Business Expenses

Section: Chapter Questions

Problem 61P

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