Question

On January 1, a company agrees to pay $23,000 in seven years. If the annual interest rate is 2%, determine how much cash the company can borrow with this agreement. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round "Table Factor" to 4 decimal places.)

Answer 1

Answer: Amount that company can borrow with the said agreement is $ 20,023.80

Explanation:

Present value of $23,000 can be calculated as follows:

Present value of $1 at the end of year 7 from PV table is 0.8706 at discount factor of 2%

Multiplying the discount factor with the agreed future value will give us the present value that the company can borrow.

Calculation: $ 23,000 x 0.8706 = $20,023.8

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