To Expand Its Operation, the International Tools Inc

question 131

Essay

To expand its operation, the International Tools Inc. (ITI) has applied for a $3,500,000 loan from the International Bank. According to ITI's financial manager, the company can only afford a maximum yearly loan payment of $1,000,000. The bank has offered ITI, 1) a 3-year loan with a 10 percent interest rate, 2) a 4-year loan with a 11 percent interest rate, or 3) a 5-year loan with a 12 percent interest rate.
(a) Compute the loan payment under each option.
(b) Which option should the company choose?

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Definitions:

Common Law

A body of law developed through court decisions and case law, rather than through legislative statutes or executive action.

Unaudited Financial Statements

Financial reports not examined and verified by an independent third party (an auditor).

Liable

Responsible by law; legally answerable.

Foreseeable

Foreseeable refers to the ability to predict or anticipate an event or outcome based on current knowledge or reasoning.