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

Question

Christine Morrison

Business

19 February, 16:49

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value of an annuity factor at 8% for 5 years is 3.9927. The present value of a 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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Clara · Answer 1

Present Value of he note 937,525

Explanation:

We do factor times annuity to get the PV of the annuity

3.9927 x 75,000 = 299,452.5

Then, we do payment over rate to know which principal generates this amount of interest

75,000/0.08 = principal = 937,500

And then we calcualte the PV of paying the principal in the future

937,500 x. 6806 = 638,062.5

Last step, we add both values together.

Principal present value 638,062.5 + Annuity Present value 299,452.5

Present Value of he note 937,525