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 $1,920,000 on March 1, $1,296,000 on June 1, and $3,015,700 on December 31.

Hanson Company borrowed $1,126,900 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, $2,192,100 note payable and an 11%, 4-year, $3,538,800 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. (Round answer to 2 decimal places, e.g. 7.58%.)

Find out:

Weighted-average interest rate %

Explanation / Answer

Hanson Company All Amounts in $ Borrowing Date Rate Amount Interest Interest of till Amount Interest 5 Year Note 01-Mar 12% 1126900 31-Dec 112690 5 Year Note 01-Jan 10% 2192100 31-Dec 219210 4 Year Note 01-Jan 11% 3538800 31-Dec 389268 Total 6857800 721168 The weighted average interest rate used for capitalisation purposes will be 10.52%

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