14. You have $25,000 in the bank, in a savings account that draws 5 percent interest. Your business needs

$25,000, and you are considering two options:

(a) Use the money in your savings account or

(b) borrow the money from the bank at 6 percent, leaving the money in your savings account.

Your financial analyst suggests that solution

(b) is better. His logic: The sum of the interest paid on the 6 percent loan is lower than the interest earned at the same time on the $25,000 deposit. His calculations are illustrated in the following spreadsheet. Show that this logic is wrong. (If you think about it, it couldn't be preferable to take a 6 percent loan when you are getting 5 percent interest from the bank. However, the explanation for this may not be trivial.)

In general, of course, the IRR is the rate of return that makes the principal in the year following the last payment equal to zero.