Question

Waterway Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,992,000 on March 1, $1,272,000 on June 1, and $3,020,740 on December 31. Waterway Company borrowed $1,012,250 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 9%, 5-year, $2,458,400 note payable and an 10%, 4-year, $3,504,400 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.

Answer 1

9.59%

Step-by-step explanation:

The computation of the weighted-average interest rate used for interest capitalization purposes is shown below:

Particulars Amount Interest

9%, 5-year note payable $2,458,400 $221,256

10%, 4-year note payable $3,504,400 $350,440

Total $5,962,800 $571,696

So, Weighted-average interest rate is

= $571,696 ÷ $5,962,800

= 9.59%