On January 1, Year 1, Mahoney Company borrowed $166,000 cash from Sun Bank by issuing a 5-year, 8% term note. The principal and interest are repaid by making annual payments beginning on December 31, Year 1. The annual payment on the loan equals $40,675.

What is the amount of principal repayment included in the payment made on December 31, Year 1?

Multiple Choice

$27,395

$37,421

$40,675

$13,280