Calculating Capitalized Interest
Response to the following problem:
The Kit Company borrows $5 million at 12% on January 1, 2010 specifically for the purpose of financing a construction project. The company invests the total amount at 11% until it makes payments for the construction project. During the first year of construction, the company incurs construction costs of $4 million evenly over the year.
Required
Compute the amount of interest that the company would capitalize and the amount of interest revenue it would recognize.