Mr. Smith financed the cost of the

Mr. Smith financed the cost of the trucks ($80,000) using an equity line of credit he had established as a second mortgage against the office building where the company is located. The equity line of credit has an interest rate of 5.65 percent. The first mortgage on the office building is for $75,000 at 6 percent APR. Last year, the office building was appraised at $175,000. Mr. and Mrs. Smith’s home was not used to finance the business because the home declined in value from $450,000 to 300,000 because of the downturn in the housing market in Lincoln. They owe $190,000 on the mortgage. Mr. Smith is very concerned about the future of ABC Moving. On the recommendation of a friend, he hired you to evaluate the risks associated with the expansion of ABC Moving and to design a plan for mitigating these risks.