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

Question

Shamrock Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1.4 million on March 1, $1.0 million on June 1, and $4 million on December 31. Shamrock Company borrowed $1.1 million on March 1 on a five-year, 12% note to help finance the building construction. In addition, the company had outstanding all year a $2-million, five-year, 14% note payable and a $3.7-million, four-year, 17% note payable.

Calculate the appropriate capitalization rate on general borrowings that would be used for capitalization of borrowing costs.

______

Explanation / Answer

Amount Interest 14% note payable 2000000 280000 17% note payable 3700000 629000 Total 5700000 909000 Capitalization Rate = 909000/5700000= 15.95% (rounded off)

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