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Determine the face value of the bill

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Question - The Bild-up Construction Company needs to borrow $100000 to help finance a new $150000 hydraulic crane used in the firm's commercial construction business. The crane will pay for itself in one year. The firm is considering the following alternatives for financing its purchase:

Alternative A: The firm's bank has agreed to lend the $100000 at a rate of 14% by arranging a bill for one year.

Alternative B: The equipment dealer has agreed to finance the equipment with a one-year loan. The $100000 loan would require payment of principle and interest totalling $116300 at year end.

Requirements -

a) Determine the face value of the bill.

b) Which alternative should Build-up select?

c) What would be your answer if the bank charged a $2000 arrangement fee for the bill?

Reference no: EM132686364

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