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A company borrows $10,000 and issues a 5-year, 6% installment note with interest payable annually. The...

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Accounting

A company borrows $10,000 and issues a 5-year, 6% installmentnote with interest payable annually. The factor for the presentvalue of an annuity at 6% for 5 years is 4.2124. The factor for thepresent value of a single sum at 6% for 5 years is 0.7473. Thepresent value of the interest payments is $2,527.44.

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3.8 Ratings (460 Votes)

The present value of investment is calculated as follows:

Present value of investment = ( $10,000 * 6%) * PVIFA*(5%, 5years ) + $10,000 PV*( 5%, 5years )

                                         = $600 * 4.2124 + $10,000 * 0.7473

                                          = $2,527.44 + $7473

                                          = $10,000

The present value of investment is $ $10,000
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A company borrows $10,000 and issues a 5-year, 6% installmentnote with interest payable annually. The factor for the presentvalue of an annuity at 6% for 5 years is 4.2124. The factor for thepresent value of a single sum at 6% for 5 years is 0.7473. Thepresent value of the interest payments is $2,527.44.

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