Financing is when you are requesting any loan from a bank, credit union, finance company or a person and guarantee a repayment in the future. In this assignment, I will analyze the scenarios bellow to choose which one would be best for my business.Investor #1 In the first scenario, the investor offered Pour Toi Hair a loan of $300,000 with a rate of 8%. This loan needs to be repaid in a 5 years period.
which means you need to pay the entire loan by the end of that 5 years. To see if this deal will be best for me, I have to calculate the total pay and the interest pay.Amount $300,000 Period (years) 5 Interest rate8%To find the payment I need to repay in 5 years, I used this formula FV = PV × (1 + r) n 300,000*(1+0.08)5 = $440,798.
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42Also, I looked for interest I need to pay for the loan.$440,798.42 – $300,000 = $140,798.42Investor #2 In the second scenario, the investor offered Pour Toi Hair a loan of $300,000 with a rate of 8%. Which is almost the same as the first scenario. The differences is that Pour Toi Hair has to repay this money by paying only the interest every year for 4 years. Also, pay the principal amount and the final interest payment at end of 5th year.
To analyze the scenarios, I have to also calculate total payment and the interest pay.Amount $300,000 Period (years) 5 Interest rate8%I look for the annual Interest Payment: 8% * $300,000.00 = $24,000.
00To find the amount paying in year 5, I used this formula FV = PV × (1 + r) n 300,000*(1+0.08)1 = $324,000.004 years interest payment: $24,000.00 * 4 = $96,000.00I look for the total payment: $96,000.
00 + $324,000.00 = $420,000.00And at last, I look for the interest paid: $420,000.00 – $300,000.00 = $120,000.00 After looking deeply into both scenarios, I realized that the best investor will be the investor #2 because my repayment amount will be smaller than the first investor. Paying less will give me the advantage of fully paying the loan back.