Riley Co. is considering a short-term or long-term financing plan for $4,000,000

Question

Riley Co. is considering a short-term or long-term financing plan for $4,000,000 in assets. They expect the following 1 year rates over the next 3 years: 6.5%, 7.75%, and 9%. Their long-term interest rate will be 7.5% for the 3 years. Assuming the rates follow their expectations, what will be the difference in interest costs over the 3 years?

Long-term interest will be $30,000 more than short-term interest Long-term interest will be $30,000 less than short-term interest Long-term interest will be $140,000 less than short-term interest None of these

Explanation / Answer

Long-term interest will be $30,000 less than short-term interest

short term interest-930,000
long term intererst-900,000

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