In order to launch the new gadget line, Acme is securing investor financing to cover the first year of fixed costs from private investors. A first...
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In order to launch the new gadget line, Acme is securing investor

financing to cover the first year of fixed costs from private investors. A first private investor is willing to loan Acme the funds needed to cover the fixed costs associated with producing the chosen gadget to be paid back in 1 year 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% but 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?




The following Cost and Sales projections were captured by the Acme's production and Sales/Marketing teams.
Table : Projected costs
Gadget Factory Set-up ($/year) Utilities ($/year) Property Taxes ($/year)
A 10,000,000 50,000 25,000
B 7,500,000 50,000 25,000
C 12,500,000 50,000 25,000

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