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11 December, 15:51

Carter Co. signs a $150,000 noninterest-bearing 5-year note payable for goods purchased from Maury Industries. The appropriate rate of interest for this type of note is 8%. At the time the note is signed, what is the present value of the note on Carter's records?

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  1. 11 December, 17:39
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    Present value of Note = $102,087

    Explanation:

    Non interest bearing note is not required the borrower to pay interest on the loan. So,

    Present value of Note on carter's record:

    Future Value = Present value x (1 + rate of interest) ^tenure of Note

    FV = PV x (1+r) ^n

    $150,000 = PV x (1 + 8%) ^5

    $150,000 = PV x (1 + 0.08) ^5

    $150,000 = PV x (1.08) ^5

    $150,000 = PV x 1.4693281

    PV = $150,000 / 1.4693281

    Present Value = $102,087.48
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