Question

A company borrows $500 million from a bank to finance the construction of its headquarters building. The terms of the loan are as follows: term of the loan is three years; annual interest is 14%; annual payment of interest only, and principal payable at the end of the term. It takes two years to build the building, during which time the company earns $10 million on the unspent loan proceeds. How much of the net loan carrying cost must be capitalized?

Answer 1

The answer and procedures of the exercise are attached in the following archives.

Explanation

You will find the procedures, formulas or necessary explanations in the archive attached below. If you have any question ask and I will aclare your doubts kindly.