Question

On January 1, 2016, a company agrees to pay $26,000 in four
years. If the annual interest rate is 5%, 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

Company can borrow with this agreement amount equal to present value of future cash flow. | ||||||||

Present Value | = | Future Value x Present Value of 1 | ||||||

= | $ 26,000 | x | 0.8227 | |||||

= | $ 21,390.20 | |||||||

Thus, | ||||||||

Company can borrow |
$ 21,390.20 |
|||||||

Working: | ||||||||

Present Value of 1 | = | (1+i)^-n | Where, | |||||

= | (1+0.05)^-4 | i | 5% | |||||

= | 0.8227 | n | 4 | |||||

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