eBook Show Me How Evaluating alternative notes A borrower has two alternatives for a loan: (1)...

Transcribed Image Text:

eBook Show Me How Evaluating alternative notes A borrower has two alternatives for a loan: (1) issue a $420,000, 120-day, 8% note or (2) issue a $420,000, 120-day note that the creditor discounts at 8%. Assume a 360-day year. a. Compute the amount of the interest expense for each option. for each alternative. b. Determine the proceeds received by the borrower in each situation. (1) $420,000, 120-day, 8% interest-bearing note (2) $420,000, 120-day note discounted at 8% c. Alternative 1 is more favorable to the borrower because the borrower receives more cash Feedback Check My Work A 360-day year is used when calculating interest on a note. Recall the definition of proceeds is the amount that the borrower receives in cash or merchandise. Consider amount of money available for use. Check My Work Save and Extr Sudomise eBook Show Me How Evaluating alternative notes A borrower has two alternatives for a loan: (1) issue a $420,000, 120-day, 8% note or (2) issue a $420,000, 120-day note that the creditor discounts at 8%. Assume a 360-day year. a. Compute the amount of the interest expense for each option. for each alternative. b. Determine the proceeds received by the borrower in each situation. (1) $420,000, 120-day, 8% interest-bearing note (2) $420,000, 120-day note discounted at 8% c. Alternative 1 is more favorable to the borrower because the borrower receives more cash Feedback Check My Work A 360-day year is used when calculating interest on a note. Recall the definition of proceeds is the amount that the borrower receives in cash or merchandise. Consider amount of money available for use. Check My Work Save and Extr Sudomise