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

Evaluate the earnings per share, Q. A ltd. Company has equity share capital...

Q. A ltd. Company has equity share capital of Rs. 5,00,000 divided into shares of Rs. 100 each. It wishes to gain further Rs. 3,00,000 for expansion cum modernization plans. The co

Pooling of interest, Pooling of Interest - Used to account for acquisition ...

Pooling of Interest - Used to account for acquisition of another company when acquiring company exchanges its voting COMMON STOCK for voting common stock of the attained company wh

Maturity risk premium , The real risk-free rate is 2%. Inflation is expecte...

The real risk-free rate is 2%. Inflation is expected to be 2% this year and 5% during the next 2 years. Suppose that the maturity risk premium is zero. What is the yield on 2-ye

Account, list and explain the stages where the errors are deducted for rect...

list and explain the stages where the errors are deducted for rectification.

Liquidity ratio, For each of the ratios listed below, indicate by the appro...

For each of the ratios listed below, indicate by the appropriate code letter, whether itis a liquidity ratio, a profitability ratio, or a solvency ratio. Code: L=Liquidity rati

Show that a price is not an equilibrium price for asset, 1. Suppose that th...

1. Suppose that the one-period rate is 4% and that the two-period rate is 6%. What sort of expectation for the one-period rate next period makes this situation an equilibrium? 2

Accounting equation, Can anyone here help me in this question ?? Kindly tel...

Can anyone here help me in this question ?? Kindly tell how can we solve it Mr. “A” starts a new business. Before to start the business operation, he has purchased vehicle Rs. 1,

Define about sme finance, Q. Define about SME FINANCE? SMEs contribute ...

Q. Define about SME FINANCE? SMEs contribute in a significant way to many economies in the world. Moreover generating income, in often large proportions in relation to GNP acro

What do you understand by partnership, Q. What do you understand by Partner...

Q. What do you understand by Partnership? Partnership - Relationship between two or more persons based on anoral, written or implied agreement whereby they agree to carry on a

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