A company borrowed $300,000 cash from the bank by signing a five-year,8% installment note.The present value factor for an annuity at 8% for five years is 3.9927.Each annuity payment equals $75,137.How much cash did the company receive from the bank on the day they borrowed this money?
A)$75,137
B)$94,013
C)$300,000
D)$375,685
E)$1,197,810

Question

Quizplus · Accepted Answer

The company borrowed $300,000 cash from the bank.
The installment note is for five years at 8%.
Using the present value factor for an annuity at 8% for five years (3.9927) and the annuity payment amount ($75,137), we can calculate the total amount paid over five years: 
$75,137 x 3.9927 = $300,002.26
This means that the company received $300,000 cash from the bank on the day they borrowed the money, as all of the borrowed money was given to them upfront. Therefore, the correct answer is choice C.

A Company Borrowed $300,000 Cash from the Bank by Signing