Question

Sunland Company borrowed $1,028,960 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 10%, 5-year, $2,013,900 note payable and an 11%, 4-year, $3,826,400 note payable. Compute the weighted-average interest rate used for interest capitalization purposes.

Answer 1

Answer:

10.66%

Explanation:

The computation of the weighted-average interest rate is shown below:

Particulars                                         Principal                     Interest

10%, 5-year note payable               $2,013,900                $201,390

11%, 4-year note payable                $3,826,400                $420,904

Total amount                                   $5,840,300                $622,294

So, the weighted-average interest rate would be

= $622,294 ÷  $5,840,300

= 10.66%