jennifer cosmetics wants to construct a new building it has 256350

Jennifer Cosmetics wants to construct a new building. It has two building options, as follows:

a. Hire a contractor to do all the work. Jennifer has a bid of $850,000 from a reputable contractor to complete the project.

b. Construct the building itself by taking out a construction loan of $800,000. Using this alternative, Jennifer believes materials and labor will cost $800,000, and interest on the construction loan will be calculated as follows:

$200,000 @ 12% for 9 months

$300,000 @ 12% for 6 months

$200,000 @ 12% for 3 months


1. What will be the recorded cost of the building under each alternative?

2. Assuming the building is depreciated over a 20-year period using straight-line depreciation with no salvage value, how much is the annual depreciation expense under each alternative? $100,000 @ 12% for 1 month

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