1. (a)
Identify the present value of debt.
1. (a)
Answer to Problem 9.6AP
The present value of debt of Company E is
Explanation of Solution
Present value:
Present value is the current value of an amount that is to be paid or received in future. Present value is determined by using the formula:
Annuity:
An annuity is referred as a sequence of payment of fixed amount of
Working Notes:
Calculate the present value of debt for the borrowed money of $2,000,000 to be repaid in five years:
Therefore, the present value of debt for the borrowed money of $2,000,000 to be repaid in five years is $1,361,160.
(1)
Calculate the present value of annuity for an agreed amount interest each year for five years:
Therefore, the present value of annuity for an agreed amount interest each year for five years is $598,907.
(2)
2. (b)
Identify the single amount the company must deposit on January 1 and also identify the total amount of interest revenue that will be earned.
2. (b)
Explanation of Solution
Determine the single amount that Company E must deposit on January 1:
Therefore, the single amount that Company E must deposit on January 1 is $463,190.
Identify the total amount of interest revenue that will be earned by Company E:
The total amount of interest revenue that will be earned by the Company E is $536,810
3.(c)
Identify the amount of each of the equal annual payments that will be paid on the note by Company E and also identify the total amount of interest expense that will be accrued by Company E.
3.(c)
Explanation of Solution
Identify the amount of each of the equal annual payments that will be paid on the note by Company E:
Therefore, The amount of each of the equal annual payments that will be paid on the note by Company E is $105,672.
Working Note:
Identify the total amount of interest expense that will be accrued by Company E:
Therefore, the total amount of interest expense that will be accrued by Company E is $72,688.
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Chapter 9 Solutions
FINANCIAL ACCOUNTING 9TH
- Halep Inc. borrowed $30,000 from Davis Bank and signed a 4-year note payable stating the interest rate was 4% compounded annually. Halep Inc. will make payments of $8,264.70 at the end of each year. Prepare an amortization table showing the principal and interest in each payment.arrow_forwardCorporation borrowed $80,000.00 at 11% compounded semi-annually for 14 years to buy a warehouse. Equal payments are made at the end of every 6 months. (a) Determine the size of the semi-annualpayments. (b) Compute the interest included in payment 9. (c) Determine the principal repaid in payment period 6. (d) Construct a partial amortization schedule showing details of the first three payments, the last three payments, and totals.arrow_forwardDetermine the amount that must be deposited now at compound interest to provide the desired sum. (Present value of a single payment, lump sum, $1 dollar) A. Amount to be invested at 8%, compounded semiannually, in order to have $17,000 in 10 years. B. Amount to be invested at 13%, compounded annually, in order to have $150,000 in 30 years.arrow_forward
- General Computers Inc. purchased a computer server by taking a loan of $33,000 at 3.50% compounded semi-annually. It made payments of $2,900 at the end of every half-year to settle the loan. a. How many payments are required to settle the loan? Round to the next payment b. Complete the partial amortization schedule, rounding the answers to the nearest cent. Payment Number Payment Interest Portion Principal Portion Principal Balance $33,000 $0.00 $0.00 $0.00 $00 1. $0.00 $0.00 $0.00 $0.00 :: :: :: :: :: :: :: $0.00 :: s0.00 $0.00 $0.00 $0.00 $0.00 $0.00 $0.00 0.00 $0.00 s0.00 Totalarrow_forwardTo provide for expansion, a company has established a sinking fund earning 9% semi-annually. The fund is anticipated to reach a balance of $51,000 in 13 years. Payments are made at the beginning of every 6 months. (a) What is the size of the periodic payment? (b) What is the accumulated balance at the end of payment period 13? (a) The size of the periodic payment is $ (Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed.)arrow_forwardFrom Part A above, assume that the bank decided to give a loan of $ 59 million to Nivea Corporation (recorded for initial year). Nivea-Corporation invested the amount in a project and generated the following sequence of cash flows over six years: Year Cash Flow ($ million) 0 -59 1 4 2 5 3 6 4 7.33 5 8 6 8.25 Calculate the terminal value assuming that cash flows after the sixth year grow at 2% annually in perpetuity, and then recalculate the NPV.Use interest rate 17%arrow_forward
- 8. The company purchased equipment and agreed to make payments of $5,400 at the end of each year for the next 8 years The company will record the purchase price of the equipment at the present value of the payments The company can borrow money at 5% interest Assume annual compound Determine the present value of the payments?arrow_forwardOn January 1, New York Company borrowed $180,000 to purchase machinery and agreed to pay 5% interest for 6 years on an installment note. Each note payment is due on the last day of the year. What is the total interest expense over the life of the loan? A. $32,779 B. $54,000 C. $33,657 D. $35,463arrow_forwardOn January 1 of this year, Skamania Company completed the following transactions (assume a 8% annual interest rate): (FV of $1, PV of $1, FVA of $1, and PVA of $1) Note: Use the appropriate factor(s) from the tables provided. a. Bought a delivery truck and agreed to pay $60,200 at the end of three years. b. Rented an office building and was given the option of paying $10,200 at the end of each of the next three years or paying $28,200 immediately. c. Established a savings account by depositing a single amount that will increase to $90,400 at the end of seven years. d. Decided to deposit a single sum in the bank that will provide 8 equal annual year-end payments of $40,200 to a retired employee (payments starting December 31 of this year). Required: a. What is the cost of the truck that should be recorded at the time of purchase? b. Which option for the office building results in the lowest present value? c. What single amount must be deposited in this account on January 1 of this year?…arrow_forward
- K A company borrowed $13,000 paying interest at 8% compounded semi-annually. If the loan is repaid by payments of $2300 made at the end of each 6 months, construct a partial amortization schedule showing the last three payments, the total paid, and the total interest paid. Complete the table below for the last three payments. (Do not round until the final answer. Then round to the nearest cent as needed.) Payment Number Amount Paid Interest Paid Principal Repaid $ $2300 $2300 4 $ Outstanding Principal 50 Total Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.) Interest Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.)arrow_forwardK A company borrowed $13,000 paying interest at 8% compounded semi-annually. If the loan is repaid by payments of $2300 made at the end of each 6 months, construct a partial amortization schedule showing the last three payments, the total paid, and the total interest paid. Complete the table below for the last three payments. (Do not round until the final answer. Then round to the nearest cent as needed.) Payment Number Amount Paid Interest Paid Principal Repaid $ $2300 $2300 4 $ Outstanding Principal 50 Total Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.) Submit test Interest Paid=$ (Do not round until the final answer. Then round to the nearest cent as needed.)arrow_forwardOn January 1, Year 1, Brown Company borrowed cash from First Bank by issuing a $107,000 face-value, four-year term note that had an 6 percent annual interest rate. The note is to be repaid by making annual cash payments of $30,879 that include both interest and principal on December 31 of each year. Brown used the proceeds from the loan to purchase land that generated rental revenues of $59,000 cash per year. b. Prepare an income statement and balance sheetfor each of the four years. Rent revenue is collected in cash at the end of each year. (Hint: Record the transactions for each year in T-accounts before preparing the financial statements.)arrow_forward
- Principles of Accounting Volume 1AccountingISBN:9781947172685Author:OpenStaxPublisher:OpenStax College