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Start-up Inc. commenced operations six months ago. They are in need of capital and an investor is prepared to provide them with $25,000. The owner
Start-up Inc. commenced operations six months ago. They are in need of capital and an investor is prepared to provide them with $25,000. The owner of Start-up has given the investor their choice of the following instruments for this investment: i. Common Shares representing 25% of the common shares outstanding (after the investment) ii. Cumulative Preferred Shares that will pay a 6% annual dividend (this will be the only preferred shares outstanding) iii. Ten-year loan paying interest of 4% annually; the entire principal will be repaid at the end of the tenth year. The corporation has no other debt and this loan will be secured by all of the corporation's assets which currently have a value of $50,000. a. If the investor wants the highest potential return, they should choose: O Cannot be determined from the information given O The ten-year loan O The preferred shares O The common shares b. If the investor wants the lowest possible risk, they should choose: O The preferred shares O The ten-year loan O The common shares o Cannot be determined from the information given
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