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On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $1, PV of $1, FVA of $1, and PVA of $1) (Use the appropriate factor(s) from the tables provided.) Promised to pay a fixed amount of $6,000 at the end of each year for seven years and a one-time payment of $115,000 at the end of the 7th year. Established a plant remodeling fund of $490,000 to be available at the end of Year 8. A single sum that will grow to $490,000 will be deposited on January 1 of this year. Agreed to pay a severance package to a discharged employee. The company will pay $75,000 at the end of the first year, $112,500 at the end of the second year, and $150,000 at the end of the third year. Purchased a $170,000 machine on January 1 of this year for $34,000 cash. A five-year note is signed for the balance. The note will be paid in five equal year-end payments starting on December 31 of this year.

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temmydbrain

Answer:

This question is incomplete, here's the remaining part to complete the question:

1. In transaction (a), determine the present value of the debt.

2-a. In transaction (b), what single sum amount must the company deposit on January 1,?

2-b. What is the total amount of interest revenue that will be earned?

3. In transaction (c), determine the present value of this obligation.

4-a. In transaction (d), what is the amount of each of the equal annual payments that will be paid on the note?

4-b. What is the total amount of interest expense that will be incurred?

Explanation:

a) A sum of $6,000 is to be paid at the end of each year for 7 years and the principal amount $115,000 to be paid at the end of 7th year.

PV=$6,000/(1+0.07)^1 + $6,000/(1+0.07)^2 +$6,000/(1+0.07)^3 +$6,000/(1+0.07)^4 +$6,000/(1+0.07)^5 +$6,000/(1+0.07)^6 +$6,000/(1+0.07)^7 +$115,000/(1+0.07)^7

PV=$5,607.47 + $5,240.63 + $4,897.78 + $4,577.37 + $4,277.91 + $3,998.05 + $3,736.49 + $71,616.22

PV=$103,951.92

b) Let the single sum that will grow to $490,000 at 7% interest per annum at the end of 8 years be X

FV=PV(1+i)^n

$490,000 = X(1+0.07)^8

Thus,

X= $490,000/(1.07)^8

X = $490,000/1.7182

X = $285,182

Thhus, a single sum of $285,182 needs to be deposited for 8 years at 7% interest p.a.

The total amount of interest revenue is ($490,000-$285,182) = $204,818

c) PV = $75,000/(1.07)^1 + $112,500/(1.07)^2 + 150,000/(1.07)^3

PV = $70,093.45 + $98,261.85 + $122,444.68

= $290,800

FV =$75,000*(1.07)^1 + $112,500*(1.07)^2 + 150,000*(1.07)^3

= $80,250 + $85,867 + $91,878

= $257,995

d) The cost of the machine is $170,000. Immediate cash paid $34,000. Loan Amount is ($170,000-$34,000)=$136,000

The PVA factor at 7% p.a compounded annually for 5 years is 4.1002

Thus, the PMT = 136,000/4.1002

= $33,169

Thus, the amount of each annual payment is $33,169 for 5 years.

The total amount to be paid is ($34,000+$33,169*5)

=$34,000+$165845

=$199845

The interest expense is ($199845 - $170,000)

= $29,845

abiolataiwo2015

1. The present value of the debt is $103,951.99.

2-a. The single sum amount is $285,185.

2-b. The total amount of interest revenue is $204,815

3. The present value of this obligation is $290,800.5.

4-a. The amount of each of the equal annual payments is  $33,169.

4-b. The total amount of interest expense that will be incurred is$29,845.

1. Present value of the debt:

PV factor for 7th year at 7% = 0.62275×$115,000=$71,616.25

PV annuity for 7 years at 7% = 5.38929×$6,000=$32,335.74

Total=$103,951.99

($71,616.25+$32,335.74)

2-a. Single sum to deposit:

Single sum to deposit = $490,000 × .58201

Single sum to deposit = $285,185

2-b. Interest revenue:

Interest revenue = $490,000 - $285,883

Interest revenue= $204,815

3. Present value of payment:

PV factor for 7% at first year=$75,000×.93458=$70,093.5

PV factor for 7% at second year=$112,500×.87344=$98,262

PV factor for 7% at third year=$150,000×.81630=$122,445

Total=$290,800.5

($70,093.5+$98,262+$122,445)

4-a. Equal annual payments on note payable:

The PV factor at 7%compounded annually for 5 years= 4.10020

 Equal annual payments on note payable=($170,000-$34,000) ÷ 4.10020

Equal annual payments on note payable=$136,000÷ 4.10020

Equal annual payments on note payable= $33,169

4-b. Interest expense:

Interest expense= ($33,169× 5) - $136,000

Interest expense=$165,845-$136,000

Interest expense= $29,845

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