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:

Question

Quizplus · Accepted Answer

To find the present value of the note, we need to calculate the present value of the annuity of $75,000 payments for five years, and then add the present value of the single sum payment at the end of the five years.

Using the annuity present value factor of 3.9927, we can find the present value of the $75,000 annual payments:

Present value = Annual payment x Annuity present value factor
Present value = $75,000 x 3.9927
Present value = $299,452.50

Next, we need to find the present value of the single sum payment at the end of the five years. Using the single sum present value factor of 0.6806, we can find the present value:

Present value = Future value x Single sum present value factor
Present value = $75,000 x 0.6806
Present value = $51,045

Finally, we add the two present values to find the total present value of the note:

Total present value = Present value of annuity + Present value of single sum
Total present value = $299,452.50 + $51,045
Total present value = $350,497.50

Therefore, the best choice is D, $299,452.50, which is the present value of the annuity payments plus the single sum payment at the end of the five years.

A Company Borrowed Cash from the Bank by Signing a 5-Year,8