Evaluating Alternative Notes A borrower has two alternatives for a loan: (1) issue a $390,000,...
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Accounting
Evaluating Alternative Notes
A borrower has two alternatives for a loan: (1) issue a $390,000, 90-day, 6% note or (2) issue a $390,000, 90-day note that the creditor discounts at 6%. Assume a 360-day year.
a. Calculate the amount of the interest expense for each option. $ for each alternative.
b. Determine the proceeds received by the borrower in each situation.
| (1) $390,000, 90-day, 6% interest-bearing note | $ |
| (2) $390,000, 90-day note discounted at 6% | $ |
c. Alternative 1 is more favorable to the borrower because the borrower receives more cash .
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