Computing the present value of a complex contract

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Question 1 - Computing the Present Value of a Complex Contract

Global Stores is downsizing and must let some employees go. Employees volunteering to leave are being offered a severance package of $118,000 cash, another $129,000 to be paid in one year, and an annuity of $27,500 to be paid each year for six years with the first payment coming at the end of this year. What is the present value of the total severance package, assuming an annual interest rate of 5%?

Question 2 - Computing Present Values and Recording Long-Term Liabilities

MoonShine Company signed a note for $50,000 to purchase a new piece of equipment. MoonShine will pay the $50,000 back at the end of two years along with any accrued interest. The annual interest rate on the loan is 6%. Compute the present value of this long-term liability, and provide the journal entry MoonShine will record on the day it purchases the piece of equipment and signs the note.

Reference no: EM132495729

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