Sheridan Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures were
$6390000 on March 1, $5350000 on June 1, and $8650000 on December 31. Sheridan Company borrowed $3160000 on January 1 on a 5-year, 14% note to help finance construction of the building. In addition, the company had outstanding all year a 12%, 3-year, $6380000 note payable and an 13%, 4-year, $12450000 note payable. What is the weighted-average interest rate used for interest capitalization purposes
1 answer:
You might be interested in
Solution :
Calculating the (NPV) Net Present value for the following matters to check the feasibility of the replacement of an 8 year old riveting machine with the new one :
Let
A = Year (n)
B = Initial outlay
C = Five-year MACRS depreciation percentage
D = Depreciation with MACRS Method (D)
E = Savings in earnings before depreciation
F = Taxable Income (earnings before depreciation - depreciation
G = Income taxes (Taxable Income *40%)
H = cash flow
I = PV of at the rate
=
/
A B C D E F G H I
0 82,500 -82,500 -82,500
1 20% 16500 27000 10500 4200 22800 20357.14
2 32% 26400 27000 600 240 26760 21332.91
3 19% 15675 27000 11325 4530 22470 15993.70
4 12% 9900 27000 17100 6840 20160 12812.04
5 11% 9075 27000 17925 7170 19830 11252.07
6 6% 4950 27000 22050 8820 18180 9210.55
7 0% 0 27000 27000 10800 16200 7328.06
8 0% 0 27000 27000 10800 16200 6542.91
NPV $22,329.39
As the NPV, the project is positive ($22,329.39) and so the company should replace the 8 year old riveting machine with the new one.