On June 30, 2016, Kimberly Farms purchased custom-made harvesting equipment from

Question

On June 30, 2016, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $68,000 in two years. The fair value of the equipment is not known, but an 9% interest rate properly reflects the time value of money for this type of loan agreement.

  

At what amount will Kimberly initially value the equipment?

Table function: ?

Future Value: ?

n: 2

i: 9%

Present value: ?

On June 30, 2016, Kimberly Farms purchased custom-made harvesting equipment from a local producer. In payment, Kimberly signed a noninterest-bearing note requiring the payment of $68,000 in two years. The fair value of the equipment is not known, but an 9% interest rate properly reflects the time value of money for this type of loan agreement.

Explanation / Answer

Solution:

Future value after 2 years 68,000 Number of years 2 Rate of interest = 9% Present value = x Future value = Present value * FVIF @ 9 % for 2 years $ 68,000 = x * 1.881 x = 57,234.24

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