Waterway Company is constructing a building. Construction began on February 1 an

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.

Explanation / Answer

Amount Interest 9%, 5-year note payable 2458400 221256 10%, 4-year note payable 3504400 350440 Total 5962800 571696 Weighted-average interest rate = 571696/5962800= 9.59%

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