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

Define return on capital employed, Q. Define Return on capital employed? ...

Q. Define Return on capital employed? Return on capital employed (ROCE) is as well called accounting rate of return. Distinctly IRR ROCE uses average annual accounting profit b

BUDGETING, In the context of the public sector, discuss incremental system...

In the context of the public sector, discuss incremental system of budgeting and evaluate their strengths and weaknesses

Determine the basis of the ultimate cost of the payment, Given information:...

Given information: Offered a $20 million commercial loan priced using a 3month LIBOR index+100bp. After some preliminary research, using a money center bank's swap trading desk

Holding company with a subsidiary and a sub-subsidiary, Holding company wit...

Holding company with a subsidiary and a sub-subsidiary Where the subsidiary company has another subsidiary company, then that subsidiary is referred to as a sub-subsidiary compan

Delegation-trusts laws and accounts, DELEGATION A trustee cannot delege...

DELEGATION A trustee cannot deleget unless: 1.    It is necessary or in the ordinary course of administration; or 2.    Authorised by the trust instrument; or 3.    Authorise

Draw budget constraint for cooking oil and flour, 1. You can buy any quanti...

1. You can buy any quantity of cooking oil at $5 per litre and any quantity of flour at $2 per kilo. You have allocated $20 to spend on cooking oil and flour.    (a) If you choo

Application for grant-executorship laws and acccounts, APPLICATION FOR GRAN...

APPLICATION FOR GRANT 1) An application for a grant of representation ("representation" means the probate of a will or the grant of letters of administration) is made in such a

Franchise, gershwin coporation obtained afranchise fron sonic hedgeehog inc...

gershwin coporation obtained afranchise fron sonic hedgeehog inc .for a cash payment of $ 120000 on april 1,2010 . the franchise grants gershwin the right to sell certain product a

Brushy mountain mining''s stock, Brushy Mountain Mining Company's ore reser...

Brushy Mountain Mining Company's ore reserves are being depleted, so its sales are declining. Also, its pit is getting deeper every year, so its costs are rising. As a result, the

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