The Following Events Affected the New Athens University Loan Fund

question 19

Essay

The following events affected the New Athens University Loan Fund:
1. $300,000 is received from a donor to establish a student loan fund. Loans will carry a 6% annual interest rate.
2. The Loan Fund loaned the $300,000 to students. Five percent of the loans are estimated to be uncollectible.
3. Loans of $50,000 were repaid with $3,000 of interest.
4. A $1,000 student loan was written off as uncollectible.
Required:
Prepare the journal entries necessary to record these transactions.

Recognize how the timing of cash flows affects the project valuation.

Distinguish between capital budgeting decisions and financing decisions.

Learn the relationship between NPV, discounted payback period, and project acceptance.

Understand the advantages and disadvantages of the payback method in project analysis.

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Definitions:

Economic Profits

Profits calculated by subtracting both explicit and implicit costs from total revenues, often representing the additional benefit over the next best alternative.

Industry Output

The total production or supply of goods and services produced within a specified industry over a given period of time.

Economic Losses

Occur when a company's total costs exceed its total revenues, resulting in a negative profit.

Industry Output

The total production of goods and services by all firms in a specific industry over a given period.