Reference no: EM132623703
In order to launch the new gadget line, Acme is securing investor financing to cover the first year of fixed costs associated with producing the chosen gadget to be paid back after 6 months with a fixed cost of borrowing of $100,000; that is, the lender will charge a fixed dollar amount of $100,000 for the loan regardless of the principle borrowed. A second investor is willing to loan the money under a simple interest payment plan with an annual interest rate of 2.5% and requires the loan be repaid after 6 months. Provide Acme with a detailed comparison of the financing options and determine how each impacts the breakeven analysis below. To do so use the FV formula for simple interest to compare the two options. Determine the rate of interest being charged under the first option. Similarly, determine the cost of borrowing under the second option. What amount of principle must be borrowed in order for the two options to be equivalent?
Gadget A:
Factory Set-Up: $10,000,000/year
Utilities: $50,000/year
Property Taxes: $25,000/year
Salary for Engineers: $185,000
Salary for Hardware Tech: $150,000
Salary for Software Tech: $120,000
Gadget B:
Factory Set-Up: $7,500,000/year
Utilities: $50,000/year
Property Taxes: $25,000/year
Salary for Engineers: $185,000
Salary for Hardware Tech: $150,000
Salary for Software Tech: $120,000
Gadget C:
Factory Set-Up: $12,500,000/year
Utilities: $50,000/year
Property Taxes: $25,000/year
Salary for Engineers: $185,000
Salary for Hardware Tech: $150,000
Salary for Software Tech: $120,000