An eight-year, $25770 noninterest-bearing promissory note is discounted 6% compounded quarterly and sold to a finance company three years and nine months after issue. What are the proceeds of the sale? Select one: a. 21396.60 b. 18713.43 c. 20007.45 O d. 20689.68

An eight-year, $25770 noninterest-bearing promissory note is discounted 6% compounded quarterly and sold to a finance company three years and nine months after issue. What are the proceeds of the sale? Select one: a. 21396.60 b. 18713.43 c. 20007.45 O d. 20689.68

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter16: Working Capital Policy And Short-term Financing

Section: Chapter Questions

Problem 18P

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Concept explainers

Capital Gain

Any capital asset when sold can give the seller a higher or lower price from its purchase price leading to a capital gain or capital loss. The time period of holding an asset is decided based on if it is a long term or short-term capital gain. On that basis, the rate of taxation is decided if it is 20%, 15% or according to the tax brackets. The rate of taxation differs in the case of equity or debt, whether long or short term. The capital gain can be adjusted from capital loss to arrive at a net capital gain. The amount of gains and the exemption has to be reported in the tax return filed in the financial year in which the asset was transferred. The tax return can be filed quarterly, monthly, semi-annually or annually.

Question

An eight-year, $25770 noninterest-bearing promissory note is discounted 6% compounded quarterly and sold to a finance company three years and nine months after
issue. What are the proceeds of the sale?
Select one:
a. 21396.60
Ob. 18713.43
c. 20007.45
Od. 20689.68

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