Biochemical corp. requires $720,000 in financing over the next three years. the firm can borrow the funds for three years at 10.20 percent interest per year. the ceo decides to do a forecast and predicts that if she utilizes short-term financing instead, she will pay 8.50 percent interest in the first year, 12.90 percent interest in the second year, and 9.75 percent interest in the third year. assume interest is paid in full at the end of each year. a. determine the total interest cost under each plan.

Determine the total interest cost under each plan.

Plan 1  220320

Plan 2 224280

Explanation:

FIRST    

F = P ( 1 + i * n )    

F=720000(1+10,20%*3)  940320  

F=940320    

Interest=940320-720000  220320  

Interest 1= 220320    

SECOND    

F = P ( 1 + i * n )    

                                                  Interest 2

F=720000(1+8,5%*1)  78120072000061200

F=720000(1+12,9%*1)  81288072000092880

F=720000(1+9,75%*1)  79020072000070200

                                                    224280

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