Step-by-step solution to: Alden Trucking Company is replacing part of its fleet

Question

Step-by-step solution to:

Alden Trucking Company is replacing part of its fleet of trucks by purchasing them under a note agreement with Kenworthy on January 1, 2016. Alden financed $40,366,197, and the note agreement will require $10.11 million in annual payments starting on December 31, 2016 and continuing for a total of four more years (final payment December 31, 2020). Kenworthy will charge Alden Trucking Company the market interest rate of 8% compounded annually. After the first payment was made, the note payable liability on December 31, 2016 is closest to:

$40,440,000.

$30,256,197.

$33,485,493.

$35,311,197.

Explanation / Answer

Note payable liability:

= Loan value*(1+Interest rate)-Annual payment

= $40,366,197*(1+8%)-$10,110,000

= $33,485,493

Hencem, correct option is $33,485,493.

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