Tipple Inc plans to acquire Ennea and sell it after 4 years. The financial manager forecasted that Ennea will generate $5 million in operating cash flows before marketing costs in Year 1 and $14,5 million in operating cash flows before marketing costs in Year 2, with operating cash flows rising by the expected levels of inflation in years 3 and 4. Marketing costs are predicted to be $9 million in Year 1 and $2 million in each of years 2 to 4. The acquisition will require immediate payment of $30,6 million. Tipple Inc pays tax at a rate of 30%. Tax is payable with a year's time delay. Losses can be carried forward. The predicted inflation rate is 8% in year one, 6% in year two, 5% in year three, and 4% in year four. Tipple Inc has been considering two choices for financing $30,6 million: 1. A subsidized loan repayable at the end of the fourth year. Issue costs are 4% of the gross amount. Interest will be paid at a rate of 30 basis points below the risk-free rate of 2,5%. Issue costs are not tax deductible. 2. Convertible loan notes which will cost 4% to issue. If not converted, the loan notes will be redeemed in six years' time. Interest would be payable at 5% which is Tipple Inc's normal cost of debt. Issue costs are not tax deductible. Tipple Inc has 125 million $1 equity shares trading at $3,20 per share, the estimated cost of equity is 10,5%. The pre-tax cost of debt is 6% and the market value of debt is $225 million. Calculate APV for both options and explain which option shall be considered and why.