Morrow Enterprises purchased a building on January 1, 2012, in exchange for a three-year, non-interest bearing note

Question:

Morrow Enterprises purchased a building on January 1, 2012, in exchange for a three-year, non-interest –bearing note with a face value of $693,000. Independent appraisers valued the building at $550,125.

(a) At what amount should this building be capitalized?

(b) Compute the present value of the notes future cash flows, using the following discount rates:

(1) 6 percent

(2) 8 percent

(3) 10 percent

(d) Explain how one could more quickly compute the effective interest rate on the note.

Face Value
Face value is a financial term used to describe the nominal or dollar value of a security, as stated by its issuer. For stocks, the face value is the original cost of the stock, as listed on the certificate. For bonds, it is the amount paid to the...