Penny Enterprises intends to make a $200,000 investment and has two alternative financing plans for financing the
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Question:
Penny Enterprises intends to make a $200,000 investment and has two alternative financing plans for financing the project:
- Financing Plan-A: Take a bank loan for $50,000 at 5% interest and raise the remaining $150,000 from equity investment.
- Financing Plan-B: Raise the entire $200,000 from equity investment by a group of investors.
Penny Enterprises projects a sales revenue of $80,000 in the first year.The projected cost of goods sold and operating expenses for the first year is $25,000 and $10,000, respectively. Assuming a 21% corporate tax rate, what is the absolute difference between the rates of return for equity investors under the two financing plans?
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