Question

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Current Attempt in Progress ces Pearl Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $7,000,000 on January 1, 2020. Pearl expected to complete the building by December 31, 2020. Pearl has the following debt obligations outstanding during the construction period. Is Support tions Construction loan-12% Interest, payable semiannually, issued December 31, 2019 Short-term loan-10% interest, payable monthly and principal payable at maturity on May 30, 2021 Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 $2,800,000 1.960,000 1.400,000 allery Course X ogs Your answer is incorrect. Assume that Pearl completed the office and warehouse building on December 31, 2020, as planned at a total cost of $7.280,000, and the weighted average amount of accumulated expenditures was $5,040,000. Compute the avoidable interest on this project. (Use interest rates rounded to 4 decimal places, eg. 7.5825% for computational purposes and round final answers to decimal places, eg. 5,275) esources Banner ubmission Avoidable Interest $ 569,408 e Textbook and Media Attempts: 1 of 3 used Save for Later Submit Answer

Answer 1

Solution 1:

Weighted average interest rate on general borrowings = 10%* $1,960,000 /$3,360,000 + 11%* $1,400,000 / $3,360,000

= 10.4167%

Avoidable interest = ($2,800,000*12%) + ($5,040,000 - $2,800,000) * 10.4167%

= $336,000 + $233,334 = $569,334