Eggs Ltd., an egg producing farm, requires short term financing and are consulting with you for advice on which financing option to choose to fund its purchases of feed for its hens. An operations consultant determined that the standard deviation of feed use on a monthly basis is 33%, with January feed use being the lowest at 1 ton and November being the highest at 2 tons. The farm manager has found two options, a revolving credit facility at a rate of 5% per annum with interest payable on the balance of the facility at the end of every month OR a one- year renewable loan at a rate of 4% payable as part of the monthly repayments on the loan. Which loan would you advise the company to take? (No calculations are required in this answer, though they are permissible. Staff your answer with a brief argument for the option you reccomend)

Eggs Ltd., an egg producing farm, requires short term financing and
are

consulting with you for advice on which financing option to choose to
fund its

purchases of feed for its hens. An operations consultant determined
that the

standard deviation of feed use on a monthly basis is 33%, with January
feed use

being the lowest at 1 ton and November being the highest at 2 tons.
The farm

manager has found two options, a revolving credit facility at a rate
of 5% per

annum with interest payable on the balance of the facility at the end
of every

month OR a one- year renewable loan at a rate of 4% payable as part of
the

monthly repayments on the loan.

Which loan would you advise the company to take?

(No calculations are required in this answer, though they are
permissible.

Staff your answer with a brief argument for the option you reccomend)