Regber International is building an addition to one of its overseas manufacturing facilities with all construction costs being paid in foreign currency (FC) as follows: 200,000 FC, 300,000 FC, 400,000 FC, and 100,000 FC on March 1, June 30, August 31, and September 30, respectively.
The initial payment was financed by a 2-month note in the amount of 200,000 FC. The note bears interest at the rate of 4.8% and principal and interest are to be paid on April 30. On April 30, the company secured a 6-month note in order to finance ongoing construction costs.
This 300,000 FC note bears interest at 6% and calls for quarterly interest payments. On June 1, the company forecasted remaining construction payments and acquired a forward contract to buy 400,000 FC at a forward rate of $1.53 with settlement on August 31. Various spot and forward rates are as shown:
Calculate the basis of the building addition including capitalized interest and financing costs associated with the forward contract. Assume that the construction was completed on September 30.

  • CreatedApril 13, 2015
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