Derivation of formulas of capital recovery factor, Financial Accounting

Assignment Help:

Derivation of Formulas

i) Future Value of an Annuity

Future value of an annuity is

FVAn = A(1 + k)n -1 + A (1 + k)n - 2  + .......A (1 + k) + A     ...............(a1)

Multiplying both sides of the equation a1 by (1 + k) gives.

 (FVAn) (1 + k) = A (1 + k)n  +A(1 +k)n -1 +... A (1 +k)2 +A (1 +k)   .......(a2)

 Subtracting eq. (a1) from eq. (a2) yields

FVAnk = A[((1 + k)n - 1)/k]    ......................................(a3)

Dividing both sides of eq. (a3) by k yields

FVAn = A[((1 + k)n - 1)/k]

ii)                  Present Value of an Annuity

The present value of an annuity as:

PVAnk = A (1 + k)-1 + A(1 + k)-2 + .... + A(1 + k)- n     ............(a 4)

Multiplying both sides of Eq (a 4) by (1+ k) provides:

 PVAn (1 + k) = A + A (1 + k)-1 + ...... + A (1 + k)-n +1    .....................(a5)

Subtracting eq (a4) by (a5) yields:

PVAnk = A[1 - (1 + k)-n]

= A [((1 + k)]n - 1)/(k (1 + k)n)            .....................(a6)

Dividing both the sides of Eq (a6) with k outcomes in as:

PVAn = A [((1 + k)]n - 1)/(k (1 + k)n)


Related Discussions:- Derivation of formulas of capital recovery factor

Accounts, the salaries paid in 2004 is rs. 500000 salaries outstanding is r...

the salaries paid in 2004 is rs. 500000 salaries outstanding is rs.20000 salaries paid in advance for 2004 is rs 30000 what is the actual salary expenditure for 2004?

What is basic defination of fca, Q. What is basic defination of FCA? Ye...

Q. What is basic defination of FCA? Yes. FCA is a method of accounting for all financial costs of funds used or committed for municipal solid waste (MSW) services. FCA suggests

What is accounting, What is accounting? Accounting is concerned with an...

What is accounting? Accounting is concerned with analysing, collecting as well as communicating financial information. Purpose is to help people who use this info to make more

Fast - slow and non moving analysis, FSN Analysis: In this method inven...

FSN Analysis: In this method inventory items are classified as per the usage/consumption pattern. They are categorizing as: Fast Moving (F) items are stored in huge quant

Calculate the total cost, 1.  The average annual investment cost of a works...

1.  The average annual investment cost of a workstation in New Jersey has been calculated to be $100,000.  It has been calculated to be $150,000 in Kentucky.  The hourly cost at a

What you understand by the term gender budgeting, Question 1: (a) "MT...

Question 1: (a) "MTEF is about resource control, resource allocation and resource utilization." You are required to identify and discuss the different stages of MTEF. (N

Construct the market value balance sheet, Construct the Market Value Balanc...

Construct the Market Value Balance Sheet XYZ, Inc., another company founded by Larry Davidson in 2005, is currently entirely equity financed. That means the company carries no

Estimate parametric market var, You have an investment in a portfolio with ...

You have an investment in a portfolio with a counterparty whose current credit rating is Baa. The current market value of the portfolio is $50,000,000 and its annual volatility is

Need help completing self assessment return, I am an AAT student studying l...

I am an AAT student studying lvl 3 AAT at college. I wish to learn how to complete self assessment end of year tax return forms for other people. That is because I have already bee

Sensitivity analysis of project, Q. Sensitivity Analysis of Project? Th...

Q. Sensitivity Analysis of Project? This system measures the change in project NPV arising from a fixed change in each project variable or measures the change in every project

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