Arlington Company is constructing a building. Construction began on January 1 and was completed on December 31. Expenditures wer
e $6,400,000 on March 1, $5,280,000 on June 1, and $8,000,000 on December 31. Arlington Company borrowed $3,200,000 on January 1 on a 5-year, 12% note to help finance construction of the building. In addition, the company had outstanding all year a 10%, 3-year, $6,400,000 note payable and an 11%, 4-year, $12,000,000 note payable.
A) What is the weighted-average interest rate used for interest capitalization purposes?
B) What is the avoidable interest for Arlington Company?
C) What is the actual interest for Arlington Company?
D) What amount of interest should be charged to expense?
A) What is the weighted-average interest rate used for interest capitalization purposes?
B) What is the avoidable interest for Arlington Company?
C) What is the actual interest for Arlington Company?
D) What amount of interest should be charged to expense?
1 answer:
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Answer:
a ) Probability of default of debt over the time to maturity is 12.92%
(b ) Expected loss: $39.53
(C ) Present value of expected loss is $45.59
Explanation:
a ) Probability of default of debt over the time to maturity is 12.92%
(b ) Expected loss: $39.53
(C ) Present value of expected loss is $45.59.
Values calculated as shown in my detailed step by step answer at the attachment.
please kindly refer to attachment.
