V.) Acquisition of PP&E; (10 points) SOAPCO started construction of a new workou
ID: 2573899 • Letter: V
Question
V.) Acquisition of PP&E; (10 points) SOAPCO started construction of a new workout on 1/1/14. SOAPCO expected to complete th obligations outstanding during the construction period. center for its own use at an estimated cost of $15,000,0 e project by 12/31/14. SOAPCO has the following deb Construction loan (10% interest, issued 12/31/11) Short-term loan (12% interest, payable monthly, principal due at maturity on Long-term loan (10% interest, payable annually on 1/1, principal payable on 1/1/16) $6,000,000 4,800,000 3,000,000 5/30/15) Assume that SOAPCO completed the center on 12/31/14 as planned at a total cost of $15,400,000, and the eighted average accumulated expenditures amounted to $11,400,000. Please compute the avoidable interest on the project (10 points). Note: if necessary round any calculated interest rates to two decimal places (eg, 9.76%, 14.95%)
Explanation / Answer
Avoidable Interest
Weighted Average Interest Rate = Total Interest / Total Principal= (576,000+300,000)/(4,800,000+3,000,000)=11.23%
Avoidable Interest = Accumulated Expenditures X Interest Rate
=6,000,000 X 10% = $600,000
Avoidable Interest = Accumulated Expenditures X Weighted Average Interest Rate
=5,400,000 X 11.23% = $606,420
Total Accumulated Expenditures = 6,000,000 + 5,400,000 = 11,400,000
Total Avoidable Interest = 600,000+606,420 = $ 1,206,420
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