Question 1 Metlock Industries Inc. building by December 31, 2017. Metlock\'s deb

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Question 1 Metlock Industries Inc. building by December 31, 2017. Metlock's debt, all started construction of a manufacturing facility for its own use at an estimated cost of $1 0,400,000 on January 1, 2017, Metock expected to complete the of which was outstanding during the construction period, was as follows . Construction loan-11.00% interest, payable semiannually, issued December 31, 2016; SS,200,000 * Long-term loan #1-10.00% interest, payable on January 1 of each year, principal payable on January 1, 2019: $1,560,000 * Long-term loan #2-12.00% interest, payable on December 31 of each year. Principal payable on December 31, 2025: $3,640,000 : Assume that Metlock completed the facility on December 31, 2017, at a total cost of $10,712,000, and the weighted-average amount of accumulated expenditures was $7,072,00o. (a) Con pute the avoidable interest on this project. (use interest rates rounded to 2 decimal places es sa% and round final answer to O decimal places ea sens Avoidable Interest

Explanation / Answer

Avoidable Interest = $785,408 Calculations: Weighted-Average Accumulated Expenditures X Interest Rate = Avoidable Interest $5,200,000 11.00% $572,000 1,872,000 11.40% 213,408 $7,072,000 $785,408 Computation of weighted-average interest rate Principal Interest Long term loan #1 - 10% $1,560,000 $156,000 Long term loan #2 - 12% 3,640,000 436,800 $5,200,000 $592,800 Weighted average interest rate = Total interest/Total principal = 592800/5200000 = 11.40%

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