You are currently earning profits of $120,000 per year before tax. In order to expand your business you will require $400,000 to support this expansion.

You expect that this expansion will generate an additional $80,000 of before tax profit each year forever. You have a couple of alternatives:

1. The bank will give you an interest only loan of 8% each year for five years. At the end of this time, you can pay the $400,000 back or you might be able to roll over the loan.
2. An investor has indicated that they are willing to invest the whole $400,000 but they want a 50% shareholding of your business.

Required: (Show all workings and calculations where required)

a. Using the information above, discuss the advantages and disadvantages of each option (at least 2advantages and disadvantages for each option) and explain your decision on that

option you will select.

b. Provide calculations within your analysis to justify your decision.

(5 marks) (5 marks)