Question

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

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.)

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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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