Crowe Company has acquired a building with a loan that requires payments of $20,000 every six months for 5 years. The annual interest rate on the loan is 12%. What is the present value of the building?
A) $72,096
B) $113,004
C) $147,202
D) $86,590
E) $200,000

Question

Quizplus · Accepted Answer

The loan payments of $20,000 every 6 months for 5 years can be represented as 10 payments (20,000 x 10 = 200,000). Using the formula for present value of an annuity, we can calculate the present value of these payments:

PV = PMT x ((1 - (1 / (1 + r)^n)) / r)

where PMT = $20,000, r = 6% (12%/2), and n = 10.

PV = 20,000 x ((1 - (1 / (1 + 0.06)^10)) / 0.06)
PV = 20,000 x 7.3601
PV = $147,202

Therefore, the present value of the building is $147,202. Choice C is the correct answer.

Crowe Company Has Acquired a Building with a Loan That