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Question
Present value interest factors are:To adjust for distortions that arise from off-balance sheet leases when comparing among firms, analysts rely on
A. the balance sheet.
B. the income statement.
C. the statement of stockholders' equity.
D. required note disclosures.
Answer
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Perez Company sold equipment to Gomez, receiving in exchange a note that called for three equal annual principal payments of $100,000 plus annual interest payments of $4,000. Because the market rate of interest for companies with Gomez' credit standing was 6% at the time of the sale, Perez correctly recorded the note at its present value of $277,993. After receiving the first payment, Perez learns that the market rate of interest on loans of this type has fallen to 5%. Assume that there is an active market for these types of notes. The present value of $1 to be received n periods in the future = 1 (1 + r)n where r is the rate of interest per period.
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C. negative restrictions.
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B. borrowers.
C. both lenders and borrowers.
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