Scranton, Inc. reports net income of $238,000 for the year ended December 31. It also reports $91,200 depreciation expense and a
1 answer:
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Answer:
$20,229.5
Explanation:
Given:
Amount to be received = $5,000
Time period, n = 5 years
nominal discount rate = 10.725%
inflation rate = 3 percent
Now,
Using the Fischer's relation, we have
1 + Nominal rate = ( 1 + Real rate ) × ( 1 + Inflation )
on substituting the values, we get
( 1 + 10.725% ) = ( 1 + Real rate ) × ( 1 + 3% )
or
1.10725 = ( 1 + Real rate ) × 1.03
or
( 1 + Real rate ) = 1.075
or
Real rate = 1.075 - 1 = 0.075 or 7.5%
Thus,
Present Value of an ordinary annuity that makes $5000 every year payment for 5 years will be calculates as:
Present value = Monthly payment ×
or
Present value =
or
Present value = 5000 × 4.0459
or
Present value = $20,229.5
Answer: <em>(C.) $2,005</em>
Explanation:
Given :
Money Co. made a cash outflow of $194,000 for the $200,000 loan Money gave to Home Co.
The book value of the loan is $194,000.
The stated rate is 11%.
Hence they will receive an effective interest rate of 12.4% on cash outflow.
∴
Income from the loan = Book value × Effective interest rate × No. of months of the year
= $194,000 × 0.124 ×
= $2,004.67