Question: Sauer Food Company has decided to buy a new computer system with an expected life of three years the cost is $330.000 the company can borrow $330,000 for three years at 11 percent annual interest or for one year at 9 percent annual interest Assume interest is paid in full at the end of each year
1. 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 9 percent rate? Compare this to the 11 percent three-year loan.
2. What if interest rates on the 9 percent loan go tp to 14 percent in year 2 and 17 percent in year 3? What would be the total interest cost compared to the 11 percent, three-year lean?