Vincent Black Lightning requires $$870,000$ in financing over the next three years. The firm can borrow the funds for three years at $6$

percent interest per year. Vincent decides to do forecasting and predicts that if he utilizes short$-$term financing instead, he will pay $4$

percent interest in the first year, $3$ percent in the second year, and $10$ percent interest in the third year.

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

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

Fixed cost plan

Short$-$term planVincent Black Lightning requires $$870,000$ in financing over the next three years. The firm can borrow the funds for three years at $6$ percent interest per year. Vincent decides to do forecasting and predicts that if he utilizes short$-$term financing instead, he will pay $4$ percent interest in the first year, $3$ percent in the second year, and $10$ 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