Answers below in red:
On January 1, 2006 XYZ Co completed the following transactions (using 8% interest rate)
a) borrowed $10,0000 for 10 years. Will pay $8,000 interest at end of each year and repay $10,000 at end of tenth year.
Determine present value of debt.
I have 100,000*.4632=$46,320
(10 year period, 8% using present value of $1)
No. Go here: Annuity Immediate Present Value
PV of 8k payments are 8,000 for 9 years @ 8% = 49,975.10. Then, you need to discount 10,000/(1.08^10). Add that to the 49,975.10 and you have your answer
b)Established a plant addition fund of $400,000 to be available at end of year 5. A single sum that will grow to $400,000 will be deposited on January 1, 2006.
What is the single sum? What is total amount of interest revenue that'll be earned?
I have 400,000*.6806=$272,240 as the single sum.
I have interest as 8% of 272,240=$21,779
I agree with PV. However, interest earned is 400k - PV of 272,240. You made no payments, so it is all interest for 5 years.
c)Agreed to pay severance to discharged employee. Will pay $50,000 at end of first year, $75,000 at end of second year and $100,000 at end of third year.
Determine persent value of obligation.
This is correct. This method though will become cumbersome with more than a few payments. There is a formula which accounts for the PV of arithmetic increases. Go here and see the math work that matches your answer, it will make your life easier in the future:
Arithmetic Annuity Immediate Present Value
d)Purchase a $180,000 machine Jan. 1, 2006 and paid cash $60,000. Four-year note payable signed for the balance. Note will be paid in 4 equal year-end payments starting Dec 31, 2006.
What is amount of each of the equal annual payments? What is total amount of interest expense incurred?
180,000-60,000=120,000*3.3121=397,452/4=$99,363 is equal payments
120,000*8%=9600 int exp year one
(120,000-89763)*8%=2419 int exp year two
No, this is a 4 year loan, go back here:
120k PV @ 8% per year for 4 years has an annual payment of 36230.50. Interest expense = Total amount of payments - Original Loan Amount. 36230.5*4 - 120,000