Boatler Used Cadillac Co. requires $900,000 in financing over the next three years. The firm can borrow the funds for three years at 6 percent simple interest per year. Mr. Boatler decides to do forecasting and predicts that if he utilizes short-term financing instead, he will pay 5 percent interest in the first year, 2 percent in the second year, and 10 percent interest in the third year. Interest is payable annually at the end of the year. a. Determine the total three-year interest cost under each plan.

	Total Interest cost
Fixed cost financing	$
Variable short-term financing	$

b. Which plan is less costly?

multiple choice

• Fixed cost plan

• Short-term plan