b. Last year the company exchanged a piece of land for a non-interest-bearing note. The note is to be paid at the rate of $15,000 per year for 9 years, beginning one year from the date of disposal of the land. An appropriate rate of interest for the note was 11%. At the time the land was originally purchased, it cost $90,000. What is the fair value (Present value) of the note?

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anthougo anthougo · Answer 1 · 2022-07-29T20:48:58+02:00

The fair value (present value) of the non-interest-bearing note, using an appropriate interest rate, is $83,055.71.

The present value represents future cash flows discounted to today's value.

The present value is calculated using the PV factor or formula.

We can also compute the present value of the note using an online finance calculator, as below.

Original cost price = $90,000

N (# of periods) = 9 years

I/Y (Interest per year) = 11%

PMT (Periodic Payment) = $15,000

FV (Future Value) = $135,000 ($90, 000 x 9)

Results:

Present Value (PV) = $ 83,055.71

Sum of all periodic payments = $135,000.00

Total Interest = $51,944.29

Thus, the fair value (present value) of $83,055.71 shows that the company paid less than the cost price of the land.

Learn more about computing the present value at https://brainly.com/question/20813161

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