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hanson company (see be9.4) borrowed $1,000,000 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, $2,000,000 note payable and an 11%, 4-year, $3,500,000 note payable. compute the weighted-average interest rate used for interest capitalization purposes.

Respuesta :

According to the given information, the weighted-average interest rate used for interest capitalization purposes is 10.64%

Particulars                                 Principle                             Interest

5 years 10% Note                  $2,000,000                        $200,000

4 years 11% Note                   $3,500,000                        $385,000

Total                                       $5,500,000                        $585,000

Weighted average interest rate = $585,000 / $5,500,000

                                                     = 0.1064

Weighted average interest rate = 10.64%

  • A weighted average computation accounts for the varied levels of significance of the numbers in a data collection. A specified weight is multiplied by each value in the data set before the final computation is completed when calculating a weighted average.
  • When all of the numbers in a data collection are given the same weight, a simple average can be less accurate than a weighted average.
  • All numbers are given equal consideration and weight when calculating a simple average, also known as an arithmetic mean. However, a weighted average applies weights that predetermine the proportional significance of each data point.

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