Question

a firm purchases equipment issuing an interest-bearing note that calls for 12 annual payments of $36,074. the first payment is due immediately. the note bears interest at 6% apr. determine the original cost of the equipment.

Answer 1

The original cost of the equipment is approximately $314,741.97.

Step-by-step explanation:

To determine the original cost of the equipment, we can use the formula for the present value of an ordinary annuity. The formula is:

Present Value = Payment Amount x (1 - (1 + Interest Rate)^-Number of Payments) / Interest Rate

Plugging in the values from the question, we have:

Present Value = $36,074 x (1 - (1 + 0.06)^-12) / 0.06

Simplifying the equation gives us the original cost of the equipment:

Present Value = $314,741.97

Therefore, the original cost of the equipment is approximately $314,741.97.