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In: Accounting

Canliss Mining Company borrowed money from a local bank. The note the company signed requires five...

Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $16,000 beginning immediately. The interest rate on the note is 6%. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.) What amount did Canliss borrow?

Solutions

Expert Solution

Present Value of annual cash flows = Annual Cash flows x Present Value of annuity due of $ 1
= $                 16,000 x                 4.4651
= $                 71,442
Amount borrowed was the present value of annual cash flows.
So, amount borrowed was $                 71,442
Working:
Present Value of annuity due of $ 1 = ((1-(1+i)^-n)/i)*(1+i) Where,
= ((1-(1+0.06)^-5)/0.06)*(1+0.06) i 6%
=                     4.4651 n 5

ekkarill92 answered 1 year ago
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