Question: A school district is borrowing $40,000,000 over 17 years to fund a building expansion project. The school board can borrow annually for 1 year and

A school district is borrowing $40,000,000 over 17 years to fund a building expansion project. The school board can borrow annually for 1 year and then MUST borrow long term (16 years) or, can borrow at a long term fixed rate for the 17 years. The school district is looking at severe budget cuts where they are considering laying off a number of personnel. The choices they are considering are to borrow for one year at 1.75% and then must borrow fixed OR they can borrow for 17 years fixed rate at 4.0%. If they borrow for one year then go fixed, they will save $900,000 in interest that year and save all the jobs. They can borrow annually for to five years then must borrow fixed for the rest of the term. What do you do and why? Be detailed and identify risks. HINT: (Not Required) You may want to calculate the PV of both options and find breakeven

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