Determine the total three-year interest cost under each plan

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Question - Vincent Black Lightning requires $890,000 in financing over the next three years. The firm can borrow the funds for three years at 7 percent interest per year. Vincent decides to do forecasting and predicts that if he utilizes short-term financing instead, he will pay 3 percent interest in the first year, 5 percent in the second year, and 11 percent interest in the third year.

Required -

a. Determine the total three-year interest cost under each plan.

b. Which plan is less costly?

Reference no: EM133145349

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