Explain how you would choose between the following situations. Develop your answers from the perspective of the principles of entrepreneurial finance presented earlier in the chapter. You may arrive at your answers with or without making actual calculations.
A. You have $1,000 to invest for one year. (This would be a luxury for most entrepreneurs). You can set a 4 percent interest rate for one year at the Third First Bank or a 5 percent interest rate at the First Fourth Bank. Which savings account investment would you choose and why?
B. A "friend" of yours will lend you $10,000 for one year if you agree to repay him $1,000 interest plus returning the $10,000 investment. A second "friend" has only $5,000 to lend to you but wants total funds of $5,400 in repayment at the end of one year. Which loan would you choose, and why?
C. You have the opportunity to invest $3,000 in one of two investments. The first investment would pay you either $2,700 or $3,300 at the end of one year, depending on the success of the venture. The second investment would pay you either $2,000 or $4,000 at the end of one year, depending on the success of the venture. Which investment would you choose and why? Would your answer change if your investment were only $1?
D. An outside venture investor is considering investing $100,000 in either your new venture or another venture, or investing $50,000 in each venture. At the end of one year, the value of your venture might be either $0 or $1 million. The other venture is expected to be worth either $50,000 or $500,000 at the end of one year. Which investment choice (yours, the other venture, or half-and-half) do you think the venture investor would choose? Why?