Carmen’s Beauty Salon has estimated monthly financing requirements for the next

Question

Carmen’s Beauty Salon has estimated monthly financing requirements for the next six months as follows:

Compute total dollar interest payments for the six months. (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent.)

Compute the total dollar interest payments if long-term financing at 12 percent had been utilized throughout the six months? (Round your monthly interest rate to 2 decimal places when expressed as a percent. Round your interest payments to the nearest whole cent.)

If long-term financing at 12 percent had been utilized throughout the six months, would the total-dollar interest payments be larger or smaller than with the short-term financing plan?

  January $ 8,600   April $ 8,600   February 2,600   May 9,600   March 3,600   June 4,600

Explanation / Answer

Short Term Financing:

               30,383.33

Long Term Financing:

Interest Rate Months Principal $ P.A % P.M % Interest $ January              8,600 5 0.416666667                  3,583.33 February              2,600 6 0.5                  1,300.00 March              3,600 9 0.75                  2,700.00 April              8,600 12 1                  8,600.00 May              9,600 12 1                  9,600.00 June              4,600 12 1                  4,600.00 TOTAL ==>

               30,383.33

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