What is the avoidable interest

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On January 1, Year 1, Paul Tire Service, Inc. signed a contract to have a new service center built for $900,000. On the same day, Paul borrowed $400,000 to finance the construction. This is an annual loan at a stated rate of 10%.

Other Debt existing on the books as of January 1, Year 1:

  • $ 500,000 @ 9%
  • $1,000,000 @ 12%

Expenditures made on the project during Year 1 were as follows:

1/1            $600,000
10/1            $200,000
                     $800,000

Problem 1: What is the avoidable interest?

Reference no: EM132988340

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