Question

Ranger Company is constructing a building. Construction began on January 1 and was completed on December 31. Weighted average accumulated expenditures totaled $8,413,333. Ranger borrowed $3,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an 11%, 4-year, $12,000,000 note payable. What is the avoidable interest for Ranger Company

Answer 1

Answer:

$939,220

Explanation:

6400000 [phone] = 18400000

we have to calculate the average interest on the general borrowing

= (10% of 6400000/ 18400000) + (11% of 12000000/18400000)

= 10% x 0.3478 + 11% x 0.65217

= 0.03478 + 0.0717

= 0.10648

= 10.65%

avoidable interest = (amount borrowed x percentage) + (expenditure-amount borrowed) x 10.65%

= 3200000*12% + (8,413,333-3200000)x10.65%

= 384000 + 555219.9

= $939,219.9

≈ $939,220