Problem $6-9($Algo$)$ Short$-$term versus longer$-$term borrowing $[$LO$6-3]$

Sauer Food Company has decided to buy a new computer system with an expected life of three years. The cost is $$270,000.$ The

company can borrow $$270,000$ for three years at $13$ percent annual interest or for one year at $11$ percent annual interest. Assume

interest is paid in full at the end of each year.

a$.$ How much would Sauer Food Company save in Interest over the three$-$year life of the computer system if the one$-$year loan is

utilized and the loan is rolled over $($reborrowed$)$ each year at the same $11$ percent rate? Compare this to the $13$ percent three$-$year

loan.

b$.$ What if interest rates on the $11$ percent loan go up to $16$ percent in year $2$ and $19$ percent in year $3?$ What would be the total interest

cost compared to the $13$ percent, three$-$year loan?