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7 March, 20:12

Boatler Used Cadillac Co. requires $800,000 in financing over the next two years. The firm can borrow the funds for two years at 9 percent interest per year. Mr. Boatler decides to do forecasting and predicts that if he utilizes short-term financing instead, he will pay 6.75 percent interest in the first year and 10.55 percent interest in the second year. Determine the total two-year interest cost under each plan. Which plan is less costly?

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  1. 7 March, 20:28
    0
    Amount required 800000

    Plan-1 9% per Annum

    Year - 1 800000 9% 72000

    Year - 2 800000 9% 72000

    Total interest 144000

    Plan-2

    Year - 1 800000 6.75% 54000

    Year - 2 800000 10.55% 84400

    Total interest 138400

    Interset cost

    Plan-1 144000

    Plan-2 138400

    Plan 2 is more benificial because interest cost is lesser than plan-1
  2. 7 March, 21:44
    0
    Plan1=$144000 Plan2 = $138400

    Plan two is lower than plan 1 interest so it is the better plan

    Explanation:

    First option

    $800000*0.09 = 72000

    So for two years

    $72000*2=$144000

    Second option

    first year

    800000*0.0675=$54000

    second year

    800000*0.1055=$84400

    adding the two

    $54000+$84400

    =$138400

    Plan two is lower than plan 1 interest so it is the better plan
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