A company must repay the bank a single payment of $20,000 cash in 3 years for a loan it entered into.The loan is at 8% interest compounded annually.The present value factor for 3 years at 8% is 0.7938.The present value of an annuity factor for 3 years at 8% is 2.5771.The present value of the loan (rounded)is:
A)$15,876.
B)$20,000.
C)$25,195.
D)$7,761.
E)$51,542.

Question

Quizplus · Accepted Answer

To calculate the present value of the loan, we need to find the present value of the single payment of $20,000 three years from now. We will use the present value factor for 3 years at 8%, which is 0.7938.

Present value of the single payment = $20,000 x 0.7938 = $15,876 (rounded to the nearest dollar).

Therefore, the best choice is A.

A Company Must Repay the Bank a Single Payment of $20,000