Build-Smart Construction Ltd wants to borrow $100,000 to finance a new $150,000 hydraulic machine to be used in a new construction project. The machine will pay for itself in one year. The firm is considering the following alternatives to buy the machine:
Option A: The firm’s bank offers to lend the $100,000 at a rate of 12% by arranging a bill for one year.
Option B: The machine dealer offers to finance the machine with a one-year loan of $100,000, and the loan would require payment of principal and interest totaling $115,500 at year-end.
(i) Determine the face value of the bill.
(ii) Which option should Build-Smart Construction Ltd. select?
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