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Canliss Mining Company borrowed money from a local bank. The note the company signed requires five annual installment payments of $10,000 not due for three years. The interest rate on the note is 7%. (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 did Canliss borrow? (Do not round intermediate calculations. Round your final answers to nearest whole dollar amount.)

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Answer:

The amount Canliss borrowed is $35,813.

Explanation:

The amount the company borrowed is equals to the present value of its repayment stream at time 0 ( time of borrowing).

As the repayments are not due for three years, the application of formula for determining present value of annuity will brings up the present value of the five annual installments as at the end of Year 2 of the loan which is calculated as:

(10,000/7%) * [1 - (1+7%)^(-5)] = $41,001.97;

Further discount the above results for 2 period to come up with the present value of repayment stream at time 0 which is also the amount the company borrowed:

41,001.97/1.07^2 = $35,813.

So, the answer is $35,813.

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