Question

Assuming the market interest rate is 10% per annum, how much would Green Co. record as a note payable if the terms of the loan with a bank are that it would have to make one $120,000 payment in two years? (The present value of $1 for two periods at 10% is 0.82645).

Answer 1

Green Co. would record $99,173.55 as a note payable.

Step-by-step explanation:

To calculate the present value of the $120,000 payment in two years, we need to discount it at the market interest rate of 10% per annum. The present value formula is PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

Using the given information, the present value of $1 for two periods at 10% is 0.82645. So, we can calculate the present value of the $120,000 payment as:

PV = $120,000 / (1 + 0.10)^2 = $120,000 / 1.21 = $99,173.55

Therefore, Green Co. would record $99,173.55 as a note payable.