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Boatler Used Cadillac Company requires $980,000 in financing over the next two years. The firm can borrow the funds for two years at 10 percent interest per year. Ms. Boatler decides to do forecasting and predicts that if she utilizes short-term financing instead, she will pay 6.75 percent interest in the first year and 11.55 percent interest in the second year. Assume interest is paid in full at the end of each year. Determine the total two-year interest cost under each plan.   Which plan is less costly? multiple choice Short-term variable-rate plan Long-term fixed-rate plan

Boatler Used Cadillac Company requires $980,000 in financing over the next two years. The firm can borrow the funds for two years at 10 percent interest per year. Ms. Boatler decides to do forecasting and predicts that if she utilizes short-term financing instead, she will pay 6.75 percent interest in the first year and 11.55 percent interest in the second year. Assume interest is paid in full at the end of each year. Determine the total two-year interest cost under each plan.   Which plan is less costly? multiple choice Short-term variable-rate plan Long-term fixed-rate plan

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter16: Working Capital Policy And Short-term Financing
Section: Chapter Questions
Problem 34P
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Boatler Used Cadillac Company requires $980,000 in financing over the next two years. The firm can borrow the funds for two years at 10 percent interest per year. Ms. Boatler decides to do forecasting and predicts that if she utilizes short-term financing instead, she will pay 6.75 percent interest in the first year and 11.55 percent interest in the second year. Assume interest is paid in full at the end of each year.

  1. Determine the total two-year interest cost under each plan.
     
  2. Which plan is less costly?

multiple choice

  • Short-term variable-rate plan
  • Long-term fixed-rate plan
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