Substrate Record: qid 665

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qid 665 · business

Question: A drama guild is renovating an old theater, hoping to use it for 15 years. The guild can follow one of two plans to finance the work: Plan A is to use $5,000 collected from guild members to pay for a renovation job which would be done immediately and would last 15 years. Plan B is to borrow $2,000 the year before the theater opens, and then in the 5th and 10th years of the theater's life to renovate it; each job will last five years. Interest is 6% for both plans. (a) Which plan should the guild follow? (b) If, in Plan B, the 2nd and 3rd renovation jobs will cost $3,000 each and the guild will not be able to borrow the money for any of the three jobs (i.e., the members will have to contribute), which plan should the guild follow?

1. Plan A, with the $5,000 invested first to grow at 6% interest before renovating
2. Plan B, with renovations every 7 years and borrowing at a lower interest rate
3. Plan A
4. Plan B, with the guild members contributing an additional $1,000 upfront for future renovations
5. Plan A, but with an additional loan taken out in the 10th year
6. Plan A, with a smaller renovation every 5 years using money from fundraising events
7. Plan B
8. Both plans
9. Plan B, with additional renovations every 3 years financed by ticket sales
10. Neither plans

Our answer: C. Plan A Source quote machine-checked (at mint)

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