A firm has notes payable of $1,546,000, long-term debt of $13,000,000, and total interest expense of $1,300,000. If the firm pays 8 percent interest on its long-term debt, what rate of interest does it pay on its notes payable?
A) 8.2%
B) 13.1%
C) 16.8%
D) 18.0%
E) 15.3%

Question

Quizplus · Accepted Answer

The total interest expense is $1,300,000. The interest on long-term debt is 8% of $13,000,000, which is $1,040,000. The remaining interest expense is $1,300,000 - $1,040,000 = $260,000. The interest rate on notes payable is $260,000 / $1,546,000 = 16.8%.

A Firm Has Notes Payable of $1,546,000, Long-Term Debt of $13,000,000