Question

A company borrowed cash from the bank by signing a 5-year, 8% installment note. The present value for an annuity (series of payments) at 8% for 5 years is 3.9927. The present value of 1 (single sum) at 8% for 5 years is .6806. Each annual payment equals $75,000. The present value of the note is:

Answer 1

Answer: $299,452.50

Step-by-step explanation:

The company will pay back $75,000 every year for 5 years. This is an Annuity as the payments are constant.

The Present Value = Annuity * ( Present Value Interest Factor of an Annuity for the year and interest)

Present Value = 75,000 * 3.9927 ( Present value Interest Factor of an Annuity at 8% for 5 years)

= $299,452.50