Answer:
the amount reported as proceeds from bond issuance is $4,509,000
Explanation:
The computation of the amount reported as proceeds from bond issuance is as follows
Total Bond Issued during 2021
= Bonds payable, December 31, 2021 - Bonds payable, January 1, 2021 + Bond Payable retired
= $4,830,000 - $809,000 + $807,000
= $4,828,000
Now
Bond issued for cash is
= Total bond issued - Bonds issued in exchange for Equipment
= $4,828,000 - $319,000
= $4,509,000
Hence, the amount reported as proceeds from bond issuance is $4,509,000
Joe is self-employed in a store that has a rental value of $500 a month which he pays, but he can vacate the building without giving notice. His other expenses are $100 a month for maintenance. He makes $25,000 a year on net sales (total revenue minus the wholesale cost of the product). If he quit his job and worked the same number of hours elsewhere at a job he liked equally well, he estimates that he could make $20,000 a year. No one else can be hired to work in the store. Joe should It is impossible to say with the information given in the problem. quit his job. work part-time. keep the job.
Answer:
work part time
Explanation:
Household purchases of durable goods $1,293 Household purchases of nondurable goods $1,717 Household purchases of services $301 Household purchases of new housing $704 Purchases of capital equipment $192 Inventory changes $374 Purchases of new structures $611 Depreciation $117 Salaries of government workers $1,422 Government expenditures on public works $553 Transfer payments $777 Foreign purchases of domestically produced goods $88 Domestic purchases of foreign goods $120 Note that depreciation is the value loss of the durable goods purchased before this year. What was country A's GDP in 2019
Answer:
The correct answer is $7,253
Explanation:
According to the given scenario, the calculation of the country A GDP in the year 2019 is as follows:
The Country's GDP is
= Net Consumption + Net investment + government purchase + net export (export-import)
= ($1,293 + $1,717 + $301) + ($704 + $310 + $374 + $611) + ($1,422 + $553) +($88 - $120)
= $3,311 + $1,999 + $1,975 - 32
= $7,253
Therefore , Country A's GDP is $7,253
In the United States, bank deposits up to a certain amount are insured by the FDIC.
True or false
Answer:
true :)
Explanation:
Store A purchases cases of fertilizer for its lawn-care business from a supplier who charges Store A $30 per order and $50 per case. Each case consists of five bags of fertilizer. Store A needs 2000 bags of fertilizer a year. Store A's annual holding costs are 30%. If Store A's order quantity is 40 cases and its lowest inventory level is 0 cases, what is its average inventory level (in cases)
Answer:
20
Explanation:
Calculation for average inventory level
Using this formula
Average inventory level=Store A's order quantity/2
Let plug in the formula
Average inventory level = 40 cases /2.
Average inventory level= 20
Therefore the Average inventory level will be 20
A business finds that sales increase when the outdoor temperature decreases. Identify the relation between sales and temperature. Select the correct answer below: Sales and temperature are positively correlated. An increase in sales causes an increase in temperature. Sales and temperature are negatively correlated. An increase in temperature causes an increas
an increase in temp causes qnd increase in sales
An increase in temperature causes an increase in sale is the relation between sales and temperature. Hence, option D is correct.
What is the increase in sales?The sales growth rate measures how successfully your company can generate revenue from sales over a specific period of time. This rate is used by investors to assess if your company is growing or starting to plateau. It is used by your firm to evaluate internal successes and difficulties.
Effective sales enable you to acquire quality leads and clients who are also useful to you. If the business was experiencing excellent sales, the employees would also be happy.
In reality, it will enhance worker performance and enable them to do their responsibilities in a more systematic and expert manner.
Thus, option D is correct.
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Service firms generally include which of the following as product or job costs: _________
a. Utilities
b. Direct labor wages
c. Supervisor salaries
d. Service firms do not track job costs
Answer: Direct labor wages
Explanation:
Answer:
B.) Direct Labor Wages
Explanation:
The service firms track the costs of that services that they provide. Thats why service firms generally include Direct labor Wages as a product or job costs
Hope this helped a little!
Nathan Herrmann has completed the basic format to be used in preparing the statement of cash flows (indirect method) for CEO Consultants.Listed below in random order are line items to be included in the statement of cash flows.Purchase of equipment $ 229,000Increase in inventory 35,000Increase in prepaid rent 7,500Payment of dividends 31,000Depreciation expense 13,000Increase in accounts receivable 47,000Increase in accounts payable 15,000Loss on sale of land 12,000Net income 69,000Repayment of notes payable 49,000Cash received from the sale of land 7,500Issuance of common stock 241,000Prepare the statement of cash flows for CEO Consultants using the indirect method.
Answer:
Ending cash balance is -$41,000.
Explanation:
This can be prepared as follows:
Nathan Herrmann
Cash Flow Statement
for the year ended ...
Details $ $
Net income 69,000
Adjustment to reconcile net income
Depreciation expense 13,000
Loss on sale of land 12,000
(Increase) decrease in current assets
Increase in inventory (35,000)
Increase in prepaid rent (7,500)
Increase in accounts receivable (47,000)
Increase (decrease) in current liabilities:
Increase in accounts payable 15,000
Net cash from operating activities 19,500
Cash flows from investing activities:
Cash received from the sale of land 7,500
Purchase of equipment (229,000)
Net cash flows from Investing activities (221,500)
Cash flows from financing activities:
Payment of dividends (31,000)
Repayment of notes payable (49,000)
Issuance of common stock 241,000
Net cash from financing activities 161,000
Increase / (Decrease) in cash (41,000)
Beginning cash balance -
Ending cash balance (41,000)
Calvin and Carolyn Coleman purchased a home in San Francisco, California, for $375,000 on October 1, 2014. Calvin obtained a job in Portland, Oregon, and on December 1, 2015, the Colemans sold their home in San Francisco for $800,000. How much of the gain must the Colemans recognize?
Answer:
$133,333
Explanation:
General exclusion available = 500,000
Pro-rated exclusion available for 14 months out of 24 months = 500,000 * 14/24 = $291,667
Realized gain = $800,000 - $375,000 = $425,000
Recognized gain = 425,000 - 291,667 = $133,333
Kim's Bridal Shoppe has 11,400 shares of common stock outstanding at a price of $48 per share. It also has 275 shares of preferred stock outstanding at a price of $90 per share. There are 300 bonds outstanding that have a coupon rate of 6.7 percent paid semiannually. The bonds mature in 29 years, have a face value of $2,000, and sell at 108 percent of par. What is the capital structure weight of the common stock
Answer:
0.0203
Explanation:
Calculation for the capital structure weight of the common stock
First step is to calculate the Value of Common Stock
Value of Common Stock = 11,400(48)
Value of Common Stock= $547,200
Second step is to calculate the Value of Preferred Stock
Value of Preferred Stock = 275(90)
Value of Preferred Stock = $24,750
Third step is to calculate the Value of Debt
Value of Debt = 1.08(2,000)(300)
Value of Debt= $648,000
Last step is to calculate the Weight of Preferred Stock
Weight of Preferred Stock = 24,750/(547,200 + 24,750 + 648,000)
Weight of Preferred Stock = 0.0203
Therefore the capital structure weight of the common stock will be 0.0203
On January 1, Graves Corporation had 60,000 shares of no-par common stock issued and outstanding. The stock has a stated value of $4 per share. During the year, the following transactions occurred. Apr. 1 Issued 9,000 additional shares of common stock for $11 per share. June 15 Declared a cash dividend of $1.5 per share to stockholders of record on June 30. July 10 Paid the $1.5 cash dividend. Dec. 1 Issued 4,000 additional shares of common stock for $12 per share. Dec. 15 Declared a cash dividend on outstanding shares of $1.6 per share to stockholders of record on December 31. Prepare the entries, if any, on each of the three dates that involved dividends. (Record journal entries in the order presented in the problem. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Round answers to 0 decimal places, e.g. 1, 225.)
Answer:
Date Account Titles and Explanation Debit Credit
June 15 Cash Dividends $103,500
[(60000+9000)*$1.5]
Dividends payable $103,500
(Being dividend declared for 69000 shares at $1.5 each)
July 10 Dividends payable $103,500
Cash $103,500
(Being dividend paid)
Dec 15 Cash Dividends $116,800
[(60000+9000+4000)*1.6]
Dividends payable $116,800
(Being dividend declared for 73000 shares at $1.6 each)
The following amounts were taken from the financial statements of Crane Company: 2017 2016 Total assets $790000 $900000 Net sales 680000 600000 Gross profit 300000 260000 Net income 54400 110000 Weighted average number of common shares outstanding 50000 50000 Market price of common stock $40 $36 The profit margin ratio for 2017 is
Answer: 8%
Explanation:
Profit Margin = Net income / Net sales
2017 Net income ⇒ $54,400
2017 Net Sales ⇒ $680,000
Profit Margin₂₀₁₇ = 54,400/680,000
= 0.08
= 8%
Suppose the working-age population of a fictional economy falls into the following categories: 30 are retired; 45 are stay-at-home parents; 120 are employed full time; 40 are employed part time; 25 are unemployed but are actively looking for employment; 15 are unemployed and are not actively looking for employment. The official unemployment rate as calculated by the BLS would be
Answer:
The unemployment rate is 13.51%
Explanation:
The computation of the unemployment rate is as follows;
But before that following calculations need to be done
Labor Force is
= 120 + 40 + 25
= 185
And, the unemployed would be 25
Now the unemployment rate is
= unemployed ÷ Labor Force
= 25 ÷ 185
= 13.51%
hence, the unemployment rate is 13.51%
Sheffield Corp. is constructing a building. Construction began in 2020 and the building was completed 12/31/20. Sheffield made payments to the construction company of $2880000 on 7/1, $6504000 on 9/1, and $5860000 on 12/31. Weighted-average accumulated expenditures were
Answer: $3,608,000
Explanation:
Payments before the end of 2020 were;
$2,880,000 on 7/1. 6 months left till 12/31.$6,504,000 on 9/1. 4 months left till 12/31Weighted-average accumulated expenditures;
= (2,880,000 * 6/12 months) + (6,504,000 * 4/12 months)
= $3,608,000
Based on his investment advisor's guidance, Christopher sold two stocks during 2020. The capital gain on the sale of Magnificent Inc. was $35,000 and the capital loss on the sale of Rotten Tomatoes Inc. was $7,000. Christopher needs the money for a downpayment on a condo. If Christopher is in the highest marginal tax bracket of 53.31%, what is the net amount that he will receive after taxes are paid on the sale of these shares to use towards the purchase of a condo
Answer:
The question is incomplete since we are not told if the capital gain is a short or long term gain. So I will answer the question in both possible scenarios.
Short term capital gains:
They are taxed as ordinary income, so the net gain = $35,000 - $7,000 = $28,000
Net gain after taxes = $28,000 x (1 - 53.31%) = $13,073.20
Long term capital gains:
They are taxed at a much lower rate that ranges from 0 to 20%. In this case, Christopher is probably taxed at 20%.
Net gain after taxes = $28,000 x (1 - 20%) = $22,400
Explanation:
On January 1, 2010, Broker Corp. issued $3,000,000 par value 12%, 10 year bonds which pay interest each December 31. If the market rate of interest was 14%, what was the issue price of the bonds
Answer:
$2,686,898
Explanation:
The computation of the issued price of the bond is as follows;
= Maturity value present value + interest payment maturity value
= $3,000,000 × 02697 + (($300,000 × 0.12) × 5.2161)
= $2,686,898
The 0.297 represent the PVF at 14% for 10 period
5.6502 represent the Present value of an annyity for 10 period at 12%
Jose opened a Premier account at City National Bank of Iowa with a minimum required deposit of
$1000. This bank advertised a rate of 1/2% on their Premier account with interest compounded quarterly.
After 5 years, what is the amount in the account?
Answer:
$1,025.299
Explanation:
The formula for compound interest is
FV = PV × (1+r)^ n
Where Fv is the future value
Pv is the present value = $1000
r is interest rate = 1/2 % or 0.5% per year
n is five years
interest is compounded quarterly,
Interest per quarter = 0.5% /4 = 0.125% which is 0.00125
n will be 5 years x 4 quarters = 20 periods
Fv= $1000 x (1 +0.00125)^20
Fv =$1000 x(1.00125)^20
Fv= $1000 x 1.025299
Fv = $1,025.299
Concord has the following inventory information. July 1 Beginning Inventory 30 units at $15 $450 7 Purchases 90 units at $23 2070 22 Purchases 10 units at $20 200 $2720 A physical count of merchandise inventory on July 31 reveals that there are 30 units on hand. Using the FIFO inventory method, the amount allocated to cost of goods sold for July is
Answer:
COGS= $2,060
Explanation:
Giving the following information:
July 1: Beginning Inventory 30 units at $15 $450
July 7: Purchases 90 units at $23 2070
July 22: Purchases 10 units at $20 200
Ending inventory in units0 30 units
First, we need to calculate the number of units sold:
Units sold= total units - ending inventory in units
Units sold= 130 - 30
Units sold= 100
Now, to calculate the cost of goods sold under the FIFO (first-in, first-out), we need to use the cost of the firsts units incorporated into inventory:
COGS= 30*15 + 70*23
COGS= $2,060
A Japanese investor can earn a 1 percent annual interest rate in Japan or about 4.1 percent per year in the United States. If the spot exchange rate is 101 yen to the dollar, at what one-year forward rate would an investor be indifferent between the U.S. and Japanese investments? a. 95.99 b. 96.99 c. 97.99 d 98.99 e. 99.99 f. 100.99 g. 101.99 h. 102.99 yens per dollar
Answer: 97.99
Explanation:
The one-year forward rate that an investor would be indifferent between the U.S. and Japanese investments will be:
= Spot rate × (1 + Japanese rate / 1 + U.S rate)
= 101 × (1 + 1% / 1 + 4.1%)
= 101 × [(1 + 0.01) / (1 + 0.041)]
= 101 × (1.01/1.041)
= 101 × 0.9702209
= 97.99
A company reports annual sales of $5 million, cost of goods sold of $2 million, inventory of $0.5 million, and net income of $0.75 million. What are the company's annual inventory turns?
a. 10
b. 4
c. 0.25
d. 0.1
Answer:
10
Explanation:
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Swifty Corporation uses a periodic inventory system. Details for the inventory account for the month of January 2022 are as follows: Units Per unit price Total Balance, 1/1/2022 230$4.00$920 Purchase, 1/15/2022 110..4.00440 Purchase, 1/28/2022 110..4.20462 An end of the month (1/31/2022) inventory showed that 180 units were on hand. If the company uses LIFO, what is the value of the ending inventory
Answer:
The value of the ending inventory is $720.
Explanation:
Note: The data in the question are merged together. They are therefore sorted before answering the question as follows:
Units Per unit price Total
Balance, 1/1/2022 230 $4.00 $920
Purchase, 1/15/2022 110 4.00 440
Purchase, 1/28/2022 110 4.20 462
The explanation of the question is now given as follows:
Last In, First Out (LIFO) refers to an inventory method in which the last item of inventory to arrive the store are sold first before the inventory that arrived earlier.
Periodic LIFO implies that the latest costs inventory are removed from inventory at the end of each period.
The value of the ending inventory can be calculated as follows:
Total units available for sales = 230 + 110 + 110 = 450
Total units sold = 450 - 180 = 270
Since total units sold is 270 and the company uses periodic LIFO, this implies that all the 110 units purchased on 1/28/2022 are sold first followed by all the 110 units purchased on 1/15/2022. The addition gives 220 units. The remaining 50 units are sold from the balance on 1/1/2022.
The implication of the above is that 180 units ending inventory is part of the balance on 1/1/2022. Therefore, the 180 units ending inventory will be valued at $4.00 price per unit of the balance on 1/1/2022 as follows:
Value of the ending inventory = 180 * $4.00 = $720
Therefore, the value of the ending inventory is $720.
Chris paid $100,000 for a single-family home on July 1, 2019, and immediately placed it in service as residential rental property. At the time, the land was valued at $10,000. The property generated $6,000 in rental income for the year. His only expenses consisted of depreciation and $500 in real estate taxes. Chris is not a real estate professional, but he does actively participate in his rental real estate activity. He has no other passive income or losses. What amount does Chris report for his total rental real estate and royalty income
Answer:
Total Rental real estate and royalty income $4,000
Explanation:
The computation of the total rental real estate and the royalty income is as follows;
For rental income and royalty
Cost of single family home $100,000
Less: Valuation of the land -$10,000
Value allocated to property 90,000
Multiplied by Depreciation rate 1.667%
Depreciation Expense for 2019 $1,500
Rental Income 6,000
Less: Depreciation expense for 2019 -$1,500
Less: Real Estates taxes -$500
Total Rental real estate and royalty income $4,000
A company used straight-line depreciation for an item of equipment that cost $16,950, had a salvage value of $4,200, and had a five-year useful life. After depreciating the asset for three complete years, the salvage value was reduced to $1,860 and its total useful life was increased from 5 years to 6 years. Determine the amount of depreciation to be charged against the machine during each of the remaining years of its useful life:
Answer:
Annual depreciation= $2,480
Explanation:
Giving the following information:
Total Purchase price= $16,950
Useful life= 5 years
Residual value= $4,200
First, we need to calculate the accumulated depreciation at the end of year 3.
Annual depreciation= (Total Purchase price - salvage value)/estimated life (years)
Annual depreciation= (16,950 - 4,200) / 5
Annual depreciation= $2,550
Accumulated depreciation= 2,550*3= $7,650
Now, we can calculate the new depreciation expense:
Depreciable value= 16,950 - 7,650= $9,300
Useful life= 3 years
Salvage value= $1,860
Annual depreciation= (9,300 - 1,860) / 3
Annual depreciation= $2,480
Left ventricular mass (LVM), determined from echocardiograms, is an important risk factor for subsequent cardiovascular disease. The researchers are interested in assessing whether LVM changes in children over a 4-year period. To help plan the main study, a pilot study is conducted where echocardiograms are obtained from 10 random children from the Bogalusa Heart Study at baseline and after 4 years of follow-up. The sample mean of LVM change over the 4-year study period is 18.9 g and the sample standard deviation is 26.4 g. For answering the questions (a) and (b) below, assume that the sample variance of LVM change in this pilot study is the true variance of LVM change in the population.(a). If the expected increase in LVM is 10 g, what is the power of such a study if a two-sided test is to be used with α = 0.05? (b). Since this is a pilot study, the main question of interest is how many subjects would be needed to detect an increase of 10 g in mean LVM over 4 years using a two-sided test with α = 0.05 and power = 80%? Suppose the researchers also want to get an idea of the true population variance σ 2 of LVM change in children over a 4-year period based on the pilot data. (c). Perform a hypothesis test to assess whether σ 2 is significantly different from 300. Use both critical-value and p-value methods. (d). Find a 95% confidence interval (CI) of σ 2 . Is the result consistent with that of (c)? Justify your answer.
Answer:
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According to the Coase theorem, private parties can solve the problem of externalities if a. the number of parties involved is sufficiently large. b. the cost of bargaining is small. c. property rights aren't clearly defined. d. the initial distribution of legal rights favors the person being adversely affected by the externality.
Answer:
b. the cost of bargaining is small.
Explanation:
The basic concepts behind the Coase Theorem is that conflicts can be solved regardless of the original rights and a solution that benefits all parties can be found as long as transaction costs (bargaining costs) are low or nonexistent, and the output of the negotiation process efficiently allocates resources. This theorem is useful when you are trying to find solutions to negative externalities.
Objectives of AllocationSamantha and Rashida are planning a trip to Padre Island, Texas, during spring break. Members of the varsity volleyball team, they are looking forward to four days of beach volleyball and parasailing. They will drive Samantha's car and estimate that they will pay the following costs during the trip:Motel (4 nights at $145) $ 580Food (each) 150Gas in total 120Parasailing and equipment rental (each) 125They have reservations at the SeaScape Motel, which charges $115 per night for a single, $145 per night for a double, and an additional $10 per night if a rollaway $580 155 132 added to a double room. but thinks that four days of partying and relaxing on the beach would be a great way to unwind from the Samantha's little sister, Kallie, wants to go along. S rigors of school. She figures he isn't into sports that she could ride with Samantha and Rashida and share their room Required: 1. Using incremental costs only, what would it cost Kallie to accompany Samantha and Rashida? 2. Using the benefits-received method, what would it cost Kallie to go on the trip? If required, round your intermediate calculations and final answer to the nearest cent.
Answer:
Increase in Motel cost = $10 per night for additional bed * 4 day = $10 * 4 = $40
Additional food cost = $150
Therefore, total cost of including Kallie for the trip is $40 + $150 = $190
1. Incremental Analysis
Without K With K Incremental cost
Motel cost $580 $620 $40
Food $300 $450 $150
Gas in total $120 $120 -
Total Incremental cost $1,000 $1,190 $190
It would cost $190 for Kallie to accompany along
2. Cost to Kallie using benefits received method
Particulars Amount
Motel ($580 + 40)/3 $206.67
Food $150
Gas ($120/3) $40
Total $396.67
Thus, cost to Kallie using benefits received method would be $396.67.
Tamarisk, Inc. employs a 5-day workweek and a September 30 year-end. Normal weekly wages amount to $33840. If September 30 ends on a Wednesday, what is the appropriate journal entry at fiscal year-end?
Answer:
Daily wages would therefore be;
= 33,840/5
= $6,768 per day
Week ends on wednesday which is 3 days into the week.
= 6,768 * 3
= $20,304
Journal Entry
Date Details Debit Credit
September 30 Salaries and Wages Expense $20,304
Salaries and Wages Payable $20,304
5 poin
What do we call an interest-bearing account at a bank that pays a higher
interest rate than a regular savings account? *
Checking Account
Stocks
Money market
None of the above
PLEASEEE
Answer:
Money market account
Explanation:
Money market deposit account MMDA are high earning saving accounts offered by banks and credit unions. Financial institutions require a minimum amount to open an MMDA account. Customers are also required to maintain a specified balance in their accounts at all times. Withdrawals from money market deposit accounts are restricted.
Money market account pays a higher interest because financial institutions use the deposit from these accounts to invest in short-term money market securities. Examples of Money market securities include commercial papers, certificates of deposits, and treasury bills. They often offer high returns. The interest rates offered on MMDA is influenced by the interest earned on the money market securities.
Catherine Jones has determined the following information about her own financial situation. Her checking account is worth $900 and her savings account is worth $1,400. She owns her own home that has a market value of $98,000. She has furniture and appliances worth $12,000 and a laptop worth $3,600. She has a car worth $13,000. She has recently purchased a mutual fund worth $6,000 and she has a retirement account worth $43,000. What is the total value of her assets
Answer: $177,900
Explanation:
Her Assets are;
Checking account, Savings account, Home, Furniture and appliances, Laptop, Car, Mutual fund and Retirement account
Total value therefore is;
= 900 + 1,400 + 98,000 + 12,000 + 3,600 + 13,000 + 6,000 + 43,000
= $177,900
A coupon bond paying semiannual interest is reported as having an ask price of 122% of its $1,000 par value. If the last interest payment was made one month ago and the coupon rate is 5%, what is the invoice price of the bond
Answer:
The correct answer is $1,224.12
Explanation:
According to the given scenario, the calculation of the invoice price of the bond is as follows:
Invoice price = Clean price + accrued interest
here
Clean price
= 122% of $1,000
= $1,220
And, the accrued interest is
= ($1,000 × 0.05 ÷ 2) × (30 days ÷ 182 days)
= 4.12088
Now the invoice price is
= $1,220 + $4.12088
= $1,224.12
hence, the invoice price of the bond is $1,224.12
If a borrower can afford to make monthly principal and interest payments of 1000 and the lender will make a 30 year loan at 5 1/2%, or a 20 year loan at 4 1/2% what is the largest loan this buyer can afford
Answer:
The the largest loan this buyer can afford is 14,533.75.
Explanation:
This can be determined using the formula for calculating the present value of an ordinary annuity as follows:
Step 1: Calculations of the present value or the loan the buyer can afford for a 30 year loan at 5 1/2%
PV30 = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)
Where;
PV30 = Present value or the loan the buyer can afford for a 30 year loan at 5 1/2% =?
P = monthly payment = 1000
r = interest rate = 5 1/2% = 5.50% = 0.055
n = number of years = 30
Substitute the values into equation (1) to have:
PV30 = 1000 * ((1 - (1 / (1 + 0.055))^30) / 0.055)
PV30 = 1000 * 14.5337451711221
PV30 = 14,533.75
Step 2: Calculation of the present value or the loan the buyer can afford for a 20 year loan at 4 1/2%
PV20 = P * ((1 - (1 / (1 + r))^n) / r) …………………………………. (2)
Where;
PV30 = Present value or the loan the buyer can afford for a 20 year loan at 4 1/2% =?
P = monthly payment = 1000
r = interest rate = 4 1/2% = 4.50% = 0.045
n = number of years = 20
Substitute the values into equation (1) to have:
PV20 = 1000 * ((1 - (1 / (1 + 0.045))^20) / 0.045)
PV20 = 1000 * 13.0079364514537
PV20 = 13,007.94
Conclusion
Since 14,533.75 which is the present value or the loan the buyer can afford for a 30 year loan at 5 1/2% is greater than the 13,007.94 which is the present value or the loan the buyer can afford for a 20 year loan at 4 1/2%, it therefore implies that the the largest loan this buyer can afford is 14,533.75.