Question

Purchased a $171,500 machine on January 1 of this year for $34,300 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year. Rev: 04_08_2019_QC_CS-165140 Required: 1. In transaction (a), determine the present value of the debt. (Round your answer to nearest whole dollar. )

Answer 1

To determine the present value of the debt, we need to use the present value formula:

Present value = Future value / (1 + r)^n

where r is the interest rate and n is the number of periods.

In this case, the future value of the debt is $171,500 - $34,300 = $137,200, which is the amount financed by the note. The interest rate is not given, so we will assume it to be 6% per year.

The note will be paid in five equal year-end payments, so n = 5. The present value of the debt as of January 1 of this year is:

Present value = $137,200 / (1 + 6%)^5
Present value = $99,646

Therefore, the present value of the debt as of January 1 of this year is $99,646.