Reese Co. constructs a new facility. The average accumulated expenditures were $800,000. Reese borrows $600,000 on a construction loan to build the facility. The interest rate on the construction loan is 5%. Reese also has an additional loan outstanding for $500,000 with an interest rate of 7%. What is the amount of annual interest that Reese should capitalize on the self-constructed facility?

a.) $40,000

b.) $46,150

c.) $56,000

d.) $44,000

Can you explain to me how to calculate this? thanks!