A company borrows $500 million from a bank to finance the construction of its headquarters building. The terms of the loan are a
s follows: term of the loan is three years; annual interest is 14%; annual payment of interest only, and principal payable at the end of the term. It takes two years to build the building, during which time the company earns $10 million on the unspent loan proceeds. How much of the net loan carrying cost must be capitalized?
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