Martinez Company is constructing a building. Construction began on February 1 an

Question

Martinez Company is constructing a building. Construction began on February 1 and was completed on December 31. Expenditures were $1,836,000 on March 1, $1,236,000 on June 1, and $3,038,370 on December 31.

Martinez Company borrowed $1,112,250 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 9%, 5-year, $2,342,100 note payable and an 10%, 4-year, $3,467,800 note payable. Compute the weighted-average interest rate used for interest capitalization purposes. (Round answer to 2 decimal places, e.g. 7.58%.)

Explanation / Answer

Specific loan: Funds for project: 1112250                               12%        133470

Other loan   :For the rest:                        2342100                                9%          210789

                                                                3467800                                10%        346780

                           Total                           5809900                                                557569

Weighted Average interest rate = 557569/5809900 x 100 = 9.59%

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