Which loan would you advise the company to take

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Eggs Ltd., an egg producing farm, requires short term financing and are consulting with you for advice on which financing option to choose to fund its purchases of feed for its hens. An operations consultant determined that the standard deviation of feed use on a monthly basis is 33%, with January feed use being the lowest at 1 ton and November being the highest at 2 tons. The farm manager has found two options, a revolving credit facility at a rate of 5% per annum with interest payable on the balance of the facility at the end of every month OR a one- year renewable loan at a rate of 4% payable as part of the monthly repayments on the loan.

Which loan would you advise the company to take?

(No calculations are required in this answer, though they are permissible. Staff your answer with a brief argument for the option you recommend)

Reference no: EM133004767

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