IB Business Management SL 5.5.4 Limitations of break-even Question Bank

Pablo's Peanuts (PP)
Pablo recently emigrated from Argentina to Miami, Florida, which has a large Hispanic* population. However, he could not find caramelized peanuts - known as garrapiñada -at any of the Latin American markets in Miami. These tasty sweet snacks, sold by street vendors, are very popular in Latin American countries. Pablo began testing different recipes to make the snack himself. Once convinced he had the perfect product, he conducted primary market research in several Hispanic neighbourhoods. He was overwhelmed by the positive response.
As a result, Pablo set up Pablo's Peanuts ( P P ) as a private limited company. He then purchased a food truck (a large vehicle equipped to cook and sell food). From Tuesday to Sunday, he drove to different Latin American markets in the Miami area to cook and sell his product. PP soon became profitable, but meeting demand was difficult.
Pablo wants PP to grow. To do this, he needs a second food truck and an employee. The second truck would require an investment of $\$ 100000$. Pablo's break-even analysis shows that the expected increased output would more than double PP's profits if the cost of fuel for the food trucks remains constant.
Pablo is considering two options to finance the second truck:
- Option 1: A local Miami bank, clearly impressed by the break-even analysis data, is willing to lend Pablo $\$ 100000$ with a 10 % interest rate.
- Option 2: A business angel, Ana Perez, with a strong portfolio of Latin American food products, has approached Pablo. She is offering $\$ 100000$ for 35 % of shares in PP.

* Hispanic: relating to Spain or to Spanish-speaking countries, especially those of Central and South America

Explain one advantage and one disadvantage of using a break-even analysis for P P.