Question

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?

Answer 1

Present value of Note = $102,087

Step-by-step 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