Question:
Boatler Used Cadillac Co. requires $80,000 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 economic forecasting and determines 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?