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1.
Identify the present value of debt.
1.
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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.
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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.
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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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