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Free response · 3.5 Financial Capital
Exam-style concept-application task: apply the topic to a new business scenario. Suggested time 12–13 minutes.
FRQ 3 — Concept application (3 points)
Brightwater Kayaks has rented kayaks from a lakeside shack for three summers, earning a profit each year and repaying a $15,000 equipment loan on schedule. The owner now wants $90,000 to add a second location and a fleet of paddleboards. Her monthly fixed costs at the new site would be $6,000; each rental brings in $45 and costs $5 in cleaning and wear. She is deciding between a bank loan at 8% and an offer from a local investor to provide $90,000 for 35% ownership.
(A) Calculate how many rentals per month the new site needs to break even, and explain why this figure matters to a lender. 1 pt
(B) Explain why Brightwater, unlike a brand-new business, is likely eligible for a business bank loan, and describe ONE benefit and ONE cost of choosing the loan over the investor's offer. 1 pt
(C) Describe TWO pieces of evidence the owner should include in her pitch to make the funding request more likely to succeed, and explain why each matters to lenders or investors. 1 pt