Pronghorn Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $13,000,000 on January 1, 2020. Pronghorn expected to complete the building by December 31, 2020. Pronghorn has the following debt obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2019 $5,200,000
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2021 3,640,000
Long-term loan-11% interest, payable on January 1 of each year. Principal payable on January 1, 2024 2,600,000
(a) Assume that Pronghorn completed the office and warehouse building on December 31, 2020, as planned at a total cost of $13,520,000, and the weighted-average amount of accumulated expenditures was $9,360,000. Compute the avoidable interest on this project. (Use interest rates rounded to 4 decimal places, e.g. 7.5825% for computational purposes and round final answers to O decimal places, e.g. 5,275.)
Avoidable Interest $ _______
Weighted average interest rate of all other debt (Other than specific loan) | |||
Debt | Amount | Interest rate | Interest amount |
10% short tern loan | $36,40,000 | 10% | $3,64,000 |
11% long tern loan | $26,00,000 | 11% | $2,86,000 |
Totals | $62,40,000 | $6,50,000 | |
Weighted average rate (total interets/ total debt) | 10.4167% |
Computation of Avoidable interest | ||||
Average | Interest Rate | Avoidable Interest | ||
Avearge Accumulated Expenditure | $93,60,000 | |||
From: | ||||
Specific Loan interest | $52,00,000 | 12.0000% | $6,24,000 | |
Other debt Interest | $41,60,000 | 10.4167% | $4,33,335 | |
Total Avoidable Interest | $10,57,335 |
Pronghorn Furniture Company started construction of a combination office and warehouse building for its own use...
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> How to calculate other debt interest?
JPate Thu, Jun 17, 2021 10:37 AM