1.
Identify the present value of debt.
1.
Answer to Problem 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.
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.
Therefore, the present value of debt of Company E is
2.
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.
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.
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.
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 (LOOSELEAF)
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