Hacienda Winery needs $500,000 for expansion of its warehouse. The company plans to finance $100,000 with internally generated funds but wants to secure a loan for the remainder. The contracting firms finance subsidiary has offered to provide the loan based on six annual payments of $97,300 each. Alternatively, Haciendas bankers will lend the firm $400,000, to be repaid in six equal annual installments (covering both principal and interest) at a 15 percent interest rate. Finally, an insurance firm would also loan the money; it requires a lump sum payment of $750,000 at the end of 6 years.

a. Based on the respective annual percentage costs of the three loans, which one should Hacienda select?

b.What other considerations might be important in addition to cost?