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

Question

Hanson Company is constructing a building. Construction began on February 1 and was completed on December 31.

Expenditures were $1,980,000 on March 1, $1,212,000 on June 1, and $3,097,700 on December 31. Hanson Company borrowed $1,130,700 on March 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,218,200 note payable and an 11%, 4-year, $3,809,500 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. (Round answer to 2 decimal places, e.g. 7.58%.)

Weighted-average interest rate _____________%

Explanation / Answer

Interest rate 12% 10% 11% Total Loan amount 1130700 2218200 3809500 7158400 Interest on loan 135684 221820 419045 776549 Average Interest on loan(776,549/7,158,400) 10.85% Answer: 10.85%

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