Question

A company purchased equipment and signed a 6-year installment loan at 8% annual interest. The annual payments equal $9,400. The present value of an annuity factor for 6 years at 8% is 4.6229. The present value of a single sum factor for 6 years at 8% is .6302. The present value of the loan is:_________.
a. $9,400.
b. $5,924.
c. $14,916.
d. $56,400.
e. $43,455.

Answer 1

Answer: e. $43,455

Explanation:

Annual payments are constant so this is an annuity. To calculate the present value of an annuity, multiply the annity by the present value of an annuity factor corresponding with its discount rate and number of periods.

Present value of loan = 9,400 * present value of an annuity factor, 6 years, 8%

= 9,400 * 4.6229

= $43,455.26‬

= $43,455