Problem 1 Computing Present Values
On January 1, 2014, Boston Company completed the following transactions (use a 7 percent annual
interest rate for all transactions):
a) Borrowed $115,000 for seven years. Will pay $6,000 interest at the end of each year and repay
the $115,000 at the end of the 7th year.
Determine present value of debt.
-103,951.96
b) Boston Company determined that the company needs to replace some of its long term assets in 8
years. The company estimated that it will need $490,000 in 8 years. Boston wants to deposit a
single sum to this FUND now so it would grow up to $490,000 in 8 years.
How much money does it need to deposit this Fund today?
What is the total amount of interest revenue that will be earned over the period of 8 years?
c) Boston Company agreed to pay a severance package to a discharged employee. The company
will pay $75,000 at the end of the first year, $112,500 at the end of the second year, and
$150,000 at the end of the third year.
What is the present value of this obligation?
