Scenario: Eric’s Electronics (EE) sells computer parts. You are the company acco

Question

Scenario:    Eric’s Electronics (EE) sells computer parts. You are the company accountant and have been charged with making several decisions regarding the company’s future.

Part 1: 10%

The company has outgrown its current facility and must borrow $250,000. The company has sent you to speak with the Bank about the financing options.   After determining the best option, you must justify your selection to the Board of Directors.

PART 1:   Eric’s Electronics has found a perfect location to house the increasing production. The company will need to have $250,000 and anticipates paying off the loan in 15 months. The company has sent you to identify the possible financing options.

The bank has several options for loans and is willing to make the following arrangements for Eric’s Electronics:

15 month Discounted Note at 5%

15 month Note at 5.5%

15 month Discounted Note for $225,000 at 4.5% concurrent with a 3 month note at 7.5% for the remainder of the amount required to be borrowed.

Given these three options, you are required to determine the best option for the company and present your finding to the Board of Directors with supporting calculations. Be sure to show the total interest paid, the interest rate, and the amount of the Note.

Explanation / Answer

Scenario: Eric’s Electronics (EE) sells computer parts. You are the company acco

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