Accounting

Klamm Company needs to borrow $100,000. It plans to sign an installment note with a 6 percent interest rate and make monthly payments for the next eight years.

How much is the monthly payment required?

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How much of the first month’s payment is interest?

What is the carrying value of the note at the end of the first month?

*Dietz Company’s capital expenditure budget calls for a $1,500,000 addition to an existing plant. The company plans to issue a three-year note and is debating whether to use a three-payment, 8 percent annual installment note; a three-year, 8 percent, $1,500,000 interest-bearing note (interest paid annually); or a three-year noninterest-bearing note (interest compounded annually). If the market interest rate is 8 percent, describe the cash inflows and outflows for each year of each note’s life.

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