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12 October, 03:18

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value for an annuity (series of payments) at 8% for 5 years is 3.9927. The present value of 1 (single sum) at 8% for 5 years is. 6806. Each annual payment equals $75,000. The present value of the note is:

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  1. 12 October, 03:34
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    Answer: $299,452.50

    Explanation:

    The company will pay back $75,000 every year for 5 years. This is an Annuity as the payments are constant.

    The Present Value = Annuity * (Present Value Interest Factor of an Annuity for the year and interest)

    Present Value = 75,000 * 3.9927 (Present value Interest Factor of an Annuity at 8% for 5 years)

    = $299,452.50
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