Question: Evaluating alternative notes A borrower has two alternatives for a loan: ( 1 ) issue a $ 5 4 0 , 0 0 0 ,

Evaluating alternative notes A borrower has two alternatives for a loan:

Evaluating alternative notes
A borrower has two alternatives for a loan: (1) issue a $540,000,60-day, 6% note or (2) issue a $540,000,60-day note that the creditor discounts at 6%. Assume a 360- day
year.
a. Compute the amount of the interest expense for each option.
$,x for each alternative.
b. Determine the proceeds received by the borrower in each situation.
(1) $540,000,60-day, 6% interest-bearing note
(2) $540,000,60-day note discounted at 6%
c. Alternative is more favorable to the borrower because the borrower receives more cash .
(1) issue a $540,000,60-day, 6% note or (2) issue a $540,000,60-day note

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