Example of capital recovery factor, Financial Accounting

Assignment Help:

Suppose you get a cash bonus of Rs.1, 00,000 that you deposit in a bank that pays 10 % annual interest. How much can you withdraw yearly for a period of 10 years?


From eq.13

A = PVAn * 1/PVIFA10%10

A = 1,00,000/6.145

A = 16,273

Present value of perpetuity:

Perpetuity is an annuity of an infinite duration

PVA = A [(1/(1 + k) + 1/(1 + k)2+ ..................+ 1/(1 + k) ∞)]

PVA = A . PVIFAk,∞

Here PVA = Present value of a perpetuity

A = Constant annual payment

PVIFAk,∞ = Present value interest factor for perpetuity

The value of PVIFAk,∞ is:

2469_Example of Capital Recovery Factor.png

An annuity's present value for interest factor of infinite duration or perpetuity is simply 1 divided via interest rate as expressed in decimal form. The present value of an annuity is equivalent to the constant annual payment divided via the interest rate, for illustration, the present value of perpetuity of Rs.20, 000 whether the interest rate is 10 percent, is Rs. 2, 00,000.

Related Discussions:- Example of capital recovery factor

Adjustments, Is goodwill a fictitious asset?

Is goodwill a fictitious asset?

Responding to various stakeholder groups, Q. Responding to various stakehol...

Q. Responding to various stakeholder groups? If a company has a solitary objective in terms of maximising profitability then it is only responding to one stakeholder group name

Steps for preparing final accounts-branches, Steps for preparing Final Acco...

Steps for preparing Final Accounts The following steps should be followed in preparing the final accounts where we have a foreign branch. 1. Update the trial balance of the br

Determine income statement and balance sheet, Prepare an Excel spreads...

Prepare an Excel spreadsheet containing the following: - Construct the next five-year pro-forma statements (income statement and balance sheet). - Estimate annual F

The optimal distribution policy strikes, The optimal distribution policy st...

The optimal distribution policy strikes that balance between current dividends and capital gains that maximizes the firm's stock price

Bond yield, If I bought a 10 year bond five years ago for 936.05. The bons ...

If I bought a 10 year bond five years ago for 936.05. The bons make semiannual coupon payments at a rate of 8.4%. If the current price of the bonds is 1,048.77, what is the yield e

Determine the profitability index for this project, An investment project r...

An investment project requires a net investment of $100,000 and is expected to generate annual net cash inflows of $25,000 for 6 years. The firm's cost of capital is 12 percent. De

Hazards of making payments out of reserves, If dividends per share are in s...

If dividends per share are in surplus of earnings per share then a company must be making the dividend payment out of reserves. In other sense the net asset value of the business w

Finding the present value, We have discussed the computation of the future ...

We have discussed the computation of the future value in the previous sections; here let us work the process in opposite. Let us assume you have won a lottery ticket worth Rs. 1000

Write Your Message!

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd