On January 1, Boston Company completed the following transactions (use a 7% annual interest rate for all transactions): (FV of $

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2 months ago

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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.

Business

1 answer:

stepan [3.5K] · Answer 1 · 2026-03-10T16:38:21+03:00

Answer:

This question is incomplete. Here’s what’s missing:

1. For transaction (a), calculate the present value of the debt.

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

2-b. What is the total interest revenue earned?

3. For transaction (c), find the present value of this obligation.

4-a. For transaction (d), how much will each equal annual payment on the note be?

4-b. What will be the total interest expense incurred?

Explanation:

a) A payment of $6,000 will be made at the end of each year for 7 years, and $115,000 will be paid at the end of the seventh 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) For the amount that will reach $490,000 with a 7% annual interest at the end of 8 years, let’s call it 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

Therefore, a deposit of $285,182 is necessary for 8 years at a 7% interest rate.

The total interest income 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 machinery's price is $170,000, with $34,000 paid upfront. The loan amount is ($170,000-$34,000)=$136,000.

The PVA factor at 7% annual compounding for 5 years is 4.1002.

Thus, the PMT = 136,000/4.1002

= $33,169.

This indicates that each yearly payment amounts to $33,169 for five years.

The total amount payable is ($34,000+$33,169*5)

=$34,000+$165845

=$199845.

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

= $29,845.