Week 14 — Borrow or Bring In a Partner: Financing a Laundromat's Second Location — Traditional alternative (no AI)
Instructors: publish this instead of the adaptive version if you prefer, and unpublish or delete the adaptive one.
Assignment 13 of the term — price a loan's yearly interest, read debt-to-equity after borrowing, weigh debt against equity, and explain it to someone new to business.
This week you learned how a growing business pays for its next step: money's three jobs, the banks and credit unions that hold it, the Federal Reserve, FDIC deposit insurance, debt and equity financing, stocks and bonds, and the securities markets. In this assignment you price a loan for one small laundromat, read its debt-to-equity after borrowing, weigh the loan against selling a share, and explain financing to someone who has never studied business. This week's lecture tutorial, quiz, discussion, and Business Case Workshop practise the same ideas from other angles.
The task
The case is illustrative, built for this course and not real data. A family-run laundromat wants to open a second location, and the washers and dryers for it cost 40,000 dollars. The owners have two offers: a lender will lend the 40,000 dollars at 6 percent a year, or an investor will pay 40,000 dollars for a 20 percent share of the business. The laundromat's year-end balance sheet shows total liabilities of 30,000 dollars and owners' equity of 50,000 dollars. Like the coffee cart in this week's chapter, the case has no named people.
The laundromat's figures, line by line:
- Second location's equipment: 40,000 dollars.
- Loan offer: 40,000 dollars at 6 percent a year.
- Investor offer: 40,000 dollars for a 20 percent share.
- Year-end total liabilities: 30,000 dollars.
- Year-end owners' equity: 50,000 dollars.
Work these two problems, showing every step of the arithmetic:
- How much interest would the loan cost the laundromat in a year, in dollars?
- If the laundromat takes the loan and the 40,000 dollars is added to its total liabilities, what would its debt-to-equity be?
Beside each answer, add a brief interpretation:
- Problem 1: classify each offer as debt financing or equity financing, name what each one costs (interest on a schedule, or a share of every future profit) and the owners' ownership share under each, and say what the interest means in a year when the new location earns little; then say which section of a business plan would carry this request for 40,000 dollars, and why a corporation could raise equity by selling stock while a sole proprietorship has no shares to sell.
- Problem 2: say what the ratio means in words, label which part of your reading is fact and which is judgment, and explain how taking the investor's money instead would change owners' equity rather than total liabilities, without declaring which offer is better.
Explain it to a non-expert
A friend who is saving to open a food stall asks you, "Why would anyone sell part of their business instead of taking a loan? You keep everything with a loan, so isn't it basically free money?" Write a 3–5 sentence message that explains, in everyday words, what a loan really costs and what selling a share really costs, and names one limit, including that the laundromat case is illustrative and that nothing in it is financial advice for a real business. More than one good answer is possible.
For a different, ungraded example, imagine a roommate who says, "My bank sold me a mutual fund, so it's insured like my checking account, right?" Model answer: "Deposit insurance from the FDIC covers deposits such as checking and savings accounts, not investments such as mutual funds, even when a bank sells them. The insurance is worded per depositor, per insured bank, for each account ownership category, up to 250,000 dollars. A mutual fund can go up or down in value, and no deposit insurance stands behind it. This is general education, so the FDIC's own pages are the place to check how the rule applies to a real account."
Use that pattern for your friend with the food stall, with your own wording and evidence.
Show your work. A reader should be able to rebuild every amount you report from the loan, the rate, and the laundromat's year-end lines, without guessing which numbers you used.
Deliverables
Submit a single report containing:
- the two answers, each with every step of the arithmetic shown and the interpretation the task names for that problem;
- your message to the friend, explaining what a loan costs and what selling a share costs, and naming one limit; and
- a short list of the laundromat's figures, giving the loan's yearly interest, the owners' share under each offer, total liabilities after the loan, and debt-to-equity after the loan, so your amounts can be checked.
Keep it to roughly one page. Clear and correct beats long.
Choose how you show it. Present your report as written text, or as a recorded audio or video explanation of about three minutes with a transcript, or as a labelled sketch of the two offers side by side with a short note. Every form is graded by the same scoring criteria. Submit in any accessible file type or as a link; a recorded response may be submitted as audio or video with a transcript, or as text.
How you'll be graded
The full analytic rubric is attached to this assignment in Canvas.
Academic integrity and AI use
This version is designed to be completed without AI: do the arithmetic, the interpretations, and the writing yourself, without a chatbot or other AI tool. You may use a free spreadsheet to lay out the laundromat's figures. Submitting AI-generated work as your own, or copying another student's work, is an integrity violation under the course policy.
Built with The Course Maker · samples.thecoursemaker.com