On January 1,1998, Moon Corporation sold a motor vehicle to Sun Company. Sun signed a Br.

200,000 non-interest bearing promissory note due on January 1, 2001. The prevailing interest rate for a
similar note on January 1, 1998, was 9%. How much is the selling price of the motor vehicle for Moon
Corporation?

1 answer

To determine the present value (selling price) of the non-interest bearing promissory note, we can calculate it using the formula for the present value of a single sum:

\[ PV = \frac{FV}{(1 + r)^n} \]

Where:

  • \( PV \) is the present value (selling price of the motor vehicle).
  • \( FV \) is the future value (the amount of the note, Br. 200,000).
  • \( r \) is the interest rate (9% or 0.09).
  • \( n \) is the number of years until the note matures (3 years).

Substituting the values:

\[ PV = \frac{200,000}{(1 + 0.09)^3} \]

Calculating the denominator:

\[ (1 + 0.09)^3 = 1.09^3 \approx 1.295029 \]

Now calculate \( PV \):

\[ PV = \frac{200,000}{1.295029} \approx 154,031.71 \]

Thus, the selling price of the motor vehicle for Moon Corporation is approximately Br. 154,031.71.