On June 30, 2013, Kimberly Farms purchased custom-made harvesting machinery from
ID: 2552069 • Letter: O
Question
On June 30, 2013, Kimberly Farms purchased custom-made harvesting machinery from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $65,000 in two years. The fair value of the machinery is not known, but an 6% interest rate properly reflects the time value of money for this type of loan agreement. (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 will Kimberly initially value the machinery?
On June 30, 2013, Kimberly Farms purchased custom-made harvesting machinery from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $65,000 in two years. The fair value of the machinery is not known, but an 6% interest rate properly reflects the time value of money for this type of loan agreement. (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.)
Explanation / Answer
Payment made at the end of Year-2 65,000 Present Value factor at 6% for Year-2 0.89 Present Value of Machinery (65000*0.89) 57850 Therfore, Kimberly initially the value the machinery at $57850
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