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

Question

Blossom Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,944,000 on March 1, $1,224,000 on June 1, and $3,046,410 on December 31.

Blossom Company borrowed $1,191,160 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 9%, 5-year, $2,480,600 note payable and an 10%, 4-year, $3,847,200 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. (Round answer to 2 decimal places, e.g. 7.58%.)

Explanation / Answer

Amount Interest 9%, 5-year note 2480600 223254 10%, 4-year note 3847200 384720 6327800 607974 Weighted-average interest rate = 607974/6327800= 9.61%

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