Question
You are trying to find a loan for your startup and banks are not ready to lend you money just yet. But you found two
You are trying to find a loan for your startup and banks are not ready to lend you money just yet. But you found two wealthy local entrepreneurs that are willing to lend you money. Mr. Musk is willing to lend you money at a 10% interest rate for a three-year loan in the amount of $50,000. Mr. Bezos on the other hand is giving you $50,000 today and asks to be repaid in three equal payment of $22,000 at the end of year 1, 2, and 3, respectively. You want to use the IRR method to evaluate which loan is more attractive to you. Which of the following statements is true?
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The IRR for Mr. Bezos loan is 15%, which is more than the interest rate that Mr. Musk is charging you. Therefore, you are better off borrowing the money from Mr. Bezos.
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The IRR for Mr. Bezos loan is 15%, which is more than the interest rate that Mr. Musk is charging you. Therefore, you are better off borrowing the money from Mr. Musk.
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IRRs and interest rates are not comparable and IRR is not a method that allows me to chose between those two loan offers.
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