Vincent Black Lightning requires $900,000 in financing over the next three years. The firm can borrow the funds for three years at 4.5 percent interest per year. Vincent decides to do forecasting and predicts that if he utilizes shortterm financing instead, he will pay 3 percent interest in the first year, 5 percent in the second year, and 7 percent interest in the third 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