Long-Term Liabilities and the Time Value of Money

Present value computation
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Explain and Compute the Present value of a car loan to be paid at a future date.
The Present value of an investment is the sum of what the future payments are worth at the current moment taking into account the present economic standard states Beaves (1993). To put it into context, when you loan a car, the value of the loan is termed as the present value to you as the lender.
Important Elements to consider in calculating the present value of that car loan;
Rate: When getting a loan, there is a rate that will be used to make the calculations of the price to be collected at the end of the loan period. This rate is given by the financial institution and is normally standard in most instances. As you make your calculation of the present value, it is important to key in the annual interest rate. This will lead to the exact monthly payments to be made and the present value of the car loan. For example; given an interest rate of 10%, the annual interest rate will be 0.83%.
Payment periods
To get the present value of the car loan it is important to know the number of payment periods that are there in an annuity. In this case when the car loan will be for four years, the payment periods of the car loan will be 48 periods. This figure is obtained by multiplying 4 years by the number of months in one year which is 12 months.
Total payment
Each pay period will have a fixed payment value which cannot change over the life of the car loan. As asserted by Ross (1995) the payment value is the inclusion of the interest rate and principle. Taking all these elements into considerations will bring the present value of the car loan. The future value of the car will have to be utilized to get the present value. After the calculation is made, the Present value of the car will be denoted with a negative just to indicate that is it a payment to be made which is an outgoing flow of cash.
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