Hanson Company is constructing a building. Construction began on February 1 and

Question

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,800,000 on March 1, $1,200,000 on June 1, and $3,000,000 on December 31.

Hanson Company borrowed $1,000,000 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 10%, 5-year, $2,000,000 note payable and an 11%, 4-year, $3,500,000 note payable. Compute avoidable interest for Hanson Company.


Please give a direct answer of one dollar value.

Explanation / Answer

Principal Interest 10%, 5-year note $2,000,000 $200,000 11%, 4-year note 3,500,000 385,000 $5,500,000 $585,000 Weighted-average interest rate = $585,000 = 10.64%

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