On December 31, 2020, Crane Company signed a $1,184,400 note to Cheyenne Bank. The market interest rate at that time was 11%. The stated interest rate on the note was 9%, payable annually. The note matures in 5 years. Unfortunately, because of lower sales, Crane’s financial situation worsened. On December 31, 2022, Cheyenne Bank determined that it was probable that the company would pay back only $710,640 of the principal at maturity. However, it was considered likely that interest would continue to be paid, based on the $1,184,400 loan.
Determine the amount of cash Crane received from the loan on December 31, 2020. (Round present value factors to 5 decimal places, e.g. 0.52513 and final answer to 0 decimal places, e.g. 5,275.)
Year | Interest @ 9% & Principal | PV Factor @ 11% | Present value |
1 | 106,596 | 0.90090 | 96,032 |
2 | 106,596 | 0.81162 | 86,515 |
3 | 106,596 | 0.73119 | 77,942 |
4 | 106,596 | 0.65873 | 70,218 |
5 | 106,596 | 0.59345 | 63,259 |
5 | 1,184,400 | 0.59345 | 702,882 |
Total | 1,717,380 | 1,096,849 |
The amount of cash Crane received from the loan on December 31, 2020 is $ 1,096,849 . |
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