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23 August, 23:10

ohnstone Company is facing several decisions regarding investing and financing activities. Address each decision independently. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor (s) from the tables provided.) 1. On June 30, 2021, the Johnstone Company purchased equipment from Genovese Corp. Johnstone agreed to pay Genovese $24,000 on the purchase date and the balance in six annual installments of $7,000 on each June 30 beginning June 30, 2022. Assuming that an interest rate of 10% properly reflects the time value of money in this situation, at what amount should Johnstone value the equipment?

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  1. 23 August, 23:22
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    Value of equipment = $54,487

    Explanation:

    Value of equipment = Down payment + Present value of annual installment

    Present value of annual installment = $7,000 * Cumulative PV Factor at 10% for 6 periods

    = $7,000 * 4.355261 = $30,487

    Value of equipment = $24,000 + $30,487 = $54,487
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