Homework Answers
a)
Fixed cost financing = $850,000 * 8% * 3
= $68,000 * 3
= $204,000.
Variable short term financing = ($850,000 * 4%) + ($850,000 *
7%) + ($850,000 * 12%)
= $34,000 + $59,500 + $102,000
= $195,500.
b)
Short term plan is less costly.
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