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Problem - 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 Bild-up select?
c) What would be your answer if the bank charged a $2000 arrangement fee for the bill?
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