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Sagot :
1. The avoidable interest on this project is $406,720.
2. The depreciation expense for the year ended December 31, 2018 is $176,891.
1. Avoidable interest
First step is to calculate the Total interest expense
Short term= ($1,400,000 x 0.10)
Short term= $140,000
Long term= ($1,000,000 x 0.11)
Long term=$110,000
Total interest expense= $140,000+ $110,000
Total interest expense=$250,000
Second step is to calculate Total expenditure
Total expenditure=$1,400,000+$1,000,000
Total expenditure=$2,400,000
Third step is to calculate the Interest rate for other debt
Interest rate for other debt=($250,000/$2,400,000)
Interest rate for other debt= 10.42%
Fourth step is to calculate avoidable interest
Construction loan= ($2,000,000 x 0.12)
Construction loan=$240,000
Other debt= ($1,600,000 x 0.1042)
Other debt =$166,720
Total avoidable interest=$240,000+$166,720
Total avoidable interest=$406,720
Incocnclusion The avoidable interest on this project is $406,720.
The depreciation expense for the year ended December 31, 2018 is $176,891.
b. Depreciation expense
Total building cost=$5,200,000 +$406,720
Total building cost =$5,606,720
Depreciation expense=($5,606,720-$300,000) / 30 years
Depreciation expense =$176,891
Inconclusion the avoidable interest on this project is $406,720 and the depreciation expense for the year ended December 31, 2018 is $176,891.
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