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?

Solution:

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

Financial accounting, The following items are found in the trial balance of...

The following items are found in the trial balance of M/s Sharada Enterprise on 31st December, 2000. 10 marks Summer 2013 Sundry Debtors Rs.160000 Bad Debts written off Rs 9000 Dis

What do you mean by bankruptcy, Q. What do you mean by Bankruptcy? Bank...

Q. What do you mean by Bankruptcy? Bankruptcy - Legal process, governed by federal statute, whereby the DEBTS of an insolventperson are liquidated after being satisfied to the

Piecemeal realizations and distributions, Piecemeal Realizations and Distri...

Piecemeal Realizations and Distributions Partnership dissolutions may take a substantial number of days even months) so it is unlikely that all cash generated will be simultane

Case study, I need help with a mini accounting project. Here is a link to t...

I need help with a mini accounting project. Here is a link to the questions I need to be answered. Read the questions and instructions and if you think you can complete the case wi

Compute the npv of the cash flows, Ace Company has a 30 percent marginal ta...

Ace Company has a 30 percent marginal tax rate and uses a 12% discount rate to compute NPV. The firm started a venture that will yield the following before-tax cash flows: year 0,

What type of an asset is goodwill, What kinds of risks does a firm like Ama...

What kinds of risks does a firm like Amazon.com face with respect to safeguarding its assets? What types of controls do you think it already has in place to minimize these risks? G

Quasi-reorganization, Quasi-Reorganization - Type of reorganization in that...

Quasi-Reorganization - Type of reorganization in that, with shareholder approval, management revalue ASSETS and eliminates DEFICIT (increased by asset devaluations if any) by charg

Calculate free cash flow to equity, (a)  In order to obtain free cash flow...

(a)  In order to obtain free cash flow to equity (FCFE), the two adjustments that Shaar must make to cash flow from operations (CFO) are  i.   CFO does not consider the inves

Looking for income statement and balance sheet, Looking for Income Statemen...

Looking for Income Statement and Balance Sheet for the Better USA, Inc. company for 2010 and 2011 Facts: Sales 11,573 (2010) and 12,936 (2011) - Depreciation 1,661 and 1,736 - Cost

Write Your Message!

Captcha
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