When a company borrows money by issuing a discount note, the company will receive an amount of cash that is
A)less than the face value of the note.
B)greater than the face value of the note.
C)equal to the face value of the note.
D)greater than the liquidation value of the note.

Question

Quizplus · Accepted Answer

When a company issues a discount note, the amount of cash that the company will receive is less than the face value of the note. The discount represents the interest expense that the borrower must pay to the lender, and it is deducted from the face value to determine the amount of cash that the borrower actually receives. Thus, the actual amount of cash received is less than the face value of the note.

When a Company Borrows Money by Issuing a Discount Note