Question

Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $10,500 beginning one year from today. The interest rate on the note is 5%.(FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What amount did Canliss borrow

Answer 1

The amount that Canliss borrowed is $45,459.51

Step-by-step explanation:

The amount borrowed is the present value of $10,500 for five years using the discount factor applicable to each to each year as shown below

The formula for discount factor=1/(1+r)^n

r is the rate of interest on the loan which is 5%

n is the year relating to each cash flow ,for instance 1 for year one

present value of the loan=$10,500/(1+5%)^1+$10,500/(1+5%)^2+$10,500/(1+5%)^3+$10,500/(1+5%)^4+$10,500/(1+5%)^5=$45,459.51