An entrepreneur is looking to expand her business. To launch a new product line, she requires a loan to cover the fixed costs for the first year of production. She has two potential investors:

- The fixed cost of borrowing for her first loan option is $1.35 million and requires the total loan to be paid back in twelve equal payments.

- The second option is a loan with a simple interest payment plan of 2.5 percent, but the loan has to be repaid in six months.

The amount she needs to borrow has yet to be determined (let’s call it X). Compare the two options (showing the work) and provide a recommendation.

Answer rating: 100% (QA)

First Option The loan needs to be repaid in 12 equal payments with a fixed cost of borrowing set ... View the full answer