Problem $6-7($Algo$)$ Short$-$term versus longer$-$term borrowing $[$LO$6-3]$

Boatler Used Cadillac Company requires $$810,000$ in financing over the next two years. The firm can borrow the funds for two years at

$7$ percent interest per year. Ms$.$ Boatler decides to do forecasting and predicts that if she utilizes short$-$term financing instead, she will

pay $5\mathrm{.}25$ percent interest in the first year and $9\mathrm{.}55$ percent interest in the second year. Assume interest is paid in full at the end of each

year.

a$.$ Determine the total two$-$year interest cost under each plan.

b$.$ Which plan is less costly$?$

Short$-$term variable$-$rate plan

Long$-$term fixed$-$rate plan