Question
On January 1, New York Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1,
On January 1, New York Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1)
- Promised to pay a fixed amount of $6,900 at the end of each year for eight years and a one-time payment of $116,800 at the end of the 8th year.
- Established a plant remodeling fund of $491,350 to be available at the end of Year 9. A single sum that will grow to $491,350 will be deposited on January 1 of this year.
- Agreed to pay a severance package to a discharged employee. The company will pay $75,900 at the end of the first year, $113,400 at the end of the second year, and $150,900 at the end of the third year.
- Purchased a $174,500 machine on January 1 of this year for $34,900 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year.
1. | In transaction (a), determine the present value of the debt. |
2-a. | In transaction (b), what single sum amount must the company deposit on January 1, of this year
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3. | In transaction (c), determine the present value of this obligation. |
4-a. | In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note? |
4-b. | What is the total amount of interest expense that will be incurred? |
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