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

Question

Buffalo Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,956,000 on March 1, $1,236,000 on June 1, and $3,075,280 on December 31. Buffalo Company borrowed $1,028,330 on March 1 on a 5-year, 13% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 5-year, $2,199,600 note payable and an 11%, 4-year, $3,483,000 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

10%, 5 year, $2199600 $219960

11%, 4 year, $3483000 $383130

Total $5682600 $603090

Weighted average interest rate = $603090 / $5682600

= 10.61%.

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