Novak Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $15,000,000 on January 1, 2025. Novak expected to complete the building by December 31, 2025. Novak has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2024 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2026 Long-term loan-11% interest, payable on January 1 of each year; principal payable on January 1, 2029 $6,000,000 4,500,000 3,000,000
Novak Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of $15,000,000 on January 1, 2025. Novak expected to complete the building by December 31, 2025. Novak has the following debt obligations outstanding during the construction period. Construction loan-12% interest, payable semiannually, issued December 31, 2024 Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2026 Long-term loan-11% interest, payable on January 1 of each year; principal payable on January 1, 2029 $6,000,000 4,500,000 3,000,000
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Ee.52.
Transcribed Image Text:Novak Furniture Company started construction of a combination office and warehouse building for its own use at an estimated cost of
$15,000,000 on January 1, 2025. Novak expected to complete the building by December 31, 2025. Novak has the following debt
obligations outstanding during the construction period.
Construction loan-12% interest, payable semiannually, issued December 31, 2024
Short-term loan-10% interest, payable monthly, and principal payable at maturity on May 30, 2026
Long-term loan-11% interest, payable on January 1 of each year; principal payable on January 1, 2029
(a)
Your answer is incorrect.
$6,000,000
Avoidable interest $
4,500,000
3,000,000
Assume that Novak completed the office and warehouse building on December 31, 2025, as planned, at a total cost of
$15,600,000, and the weighted-average amount of accumulated expenditures was $10,800,000. Compute the avoidable interest
on this project. (Use interest rates rounded to 2 decimal places, e.g. 7.58% for computational purposes and round final answers to O
decimal places, eg. 5,275.)
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