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Question - On January 1, 2020, Lawrence Co. began construction of a building to be used as its office headquarters. The building is expected to be completed on December 31, 2020. Expenditures on this project during 2020 were as follows:
January 1st $160,000
March 1st 420,000
June 1st 270,000
October 31st 165,000
On Jan. 1, 2020, the company obtained a $600,000 specific construction loan with a 7% interest rate. The loan was outstanding during the entire construction period. The company's other interest-bearing debts included two long-term notes of $480,000 and $900,000 with interest rates of 10% and 11%, respectively. Both notes were outstanding during the entire construction period.
Instruction -
(a) Determine the amount of interest capitalized for 2020. Please show your work.
(b) Regardless your answer in (a), determine the amount of avoidable interest for 2020 assuming that the weighted average accumulated expenditure is $534,000 (other things being equal).
Hubbard argues that the Fed can control the Fed funds rate, but the interest rate that is important for the economy is a longer-term real rate of interest. How much control does the Fed have over this longer real rate?
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Create a cost-benefit analysis to evaluate the project
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Your Corp, Inc. has a corporate tax rate of 35%. Please calculate their after tax cost of debt expressed as a percentage. Your Corp, Inc. has several outstanding bond issues all of which require semiannual interest payments.
Simple Interest, Compound interest, discount rate, force of interest, AV, PV
CAPM and Venture Capital
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