Income statement and balance sheet

Sriram Corporation’s capital expenditure budget calls for the construction of a new addition to the plant and the corporation’s controller plans to borrow $8,000,000 to finance a portion of the construction. While the controller has decided to issue a three-year note, she is undecided on which debt instrument to use. She wants you to show the impact of the following alternatives on the company’s budgeted statement of cash flows, income statement, and balance sheet over the life of the note:

(a) a noninterest-bearing note (interest compounded annually),

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(b) a 9 percent installment note with annual payments, and

(c) a 7 percent bond with annual payments. The market rate of interest is 9 percent.


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