Nathan Company has completed its capital budgeting analysis that indicated a positive net present value. Accordingly it has decided to purchase new equipment with a list price of $800,000 and a setup cost of $50,000. Now the question is how to finance the purchase. Nathan believes it can issue 10,000 shares of common stock for $30 per share but the rest of the money must be borrowed. The market rate of interest is predicted to be 5 percent when this deal is completed.
A. If Nathan finances this purchase with a 10-year quarterly installment note, how will the company’s budgeted income statement, statement of cash flows, and balance sheet be impacted?
B. If Nathan finances this purchase with a 10-year noninterest-bearing note of $550,000, how will the company’s budgeted income statement, statement of cash flows, and balance sheet be impacted?
C. If Nathan finances this purchase with a 10-year bond issue of $550,000 paying 6 percent semiannually, how will the company’s budgeted income statement, statement of cash flows, and balance sheet be impacted?
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