Drill 30 ·
AP Business with Personal Finance: Mixed Finance and Strategy Drill 30 is a practice drill. It contains 5 original questions created by Brian Stewart, a Barron's test prep author with over 20 years of tutoring experience.
A capstone drill in which a landscaping firm chooses how to fund an expansion and recommends a path with evidence; it uses an invented company and original figures.
Sennfield Grounds is a landscaping firm planning a 40,000-dollar expansion to take on larger commercial jobs. It is choosing between two ways to fund the expansion. Option A is a 1-year bank loan of 40,000 dollars at 8 percent simple annual interest. Option B is to sell a 25 percent ownership share to an outside investor for 40,000 dollars. This option charges no interest, but it gives the investor one quarter of all future profits. The owner notes this is the same tradeoff a household faces when it borrows for a large purchase instead of giving up something it owns: a loan must be repaid with interest, but it keeps full ownership.
Sennfield Grounds: Two Funding Options for a 40,000-dollar Expansion
| Feature | Option A: bank loan | Option B: sell equity |
|---|---|---|
| Amount raised | 40,000 | 40,000 |
| Interest rate (simple, 1 year) | 8% | None |
| Ownership given up | None | 25% |
| Claim on future profits | None | 25% ongoing |