Answer:
$406,720
Step-by-step explanation:
Calculating weighted average interest rate for 10% short term loan and 11% for long term loan:
Interest rate payable in 2014 on short term loan = $1,400,000 * 10% = $140,000
Interest rate payable in 2014 on long term loan = $1,000,000 * 11% = $110,000
Weighted average interest rate = $140,000 + $110,000 / $1,400,000 + $1,000,000 * 100
Weighted average interest rate = 0.10416666
Weighted average interest rate = 10.42%
Calculating avoidable interest:
Avoidable interest = [$2,000,000*12%] + [($3,600,000 - $2,000,000) * 10.42%]
Avoidable interest = $240,000 + $166,720
Avoidable interest = $406,720