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

Prepare the necessary journal entries in 2013, Berg Company adopted a stock...

Berg Company adopted a stock-option plan on November 30, 2013, that provided that 73,200 shares of $5 par value stock be designated as available for the granting of options to offi

Determine the price of an asset paying - one period bond , Suppose the inte...

Suppose the interest rate for a one-period bond is 4%. (a) What is the price of an asset paying (1,1,1) which means 1 after 1 period, 1 after 2 periods, and 1 after 3 periods.

Depriciation , an asset has a useful life of 4 years.If it is depriciated b...

an asset has a useful life of 4 years.If it is depriciated by diminishing balance method.Its book value at the end of 4 years is 24% of its original cost.Hence the rate of depricia

Define the term limited company- business ownership, Define the term Limite...

Define the term Limited company- business ownership Limited companies can range in size from quite small to very large. Number of individuals who subscribe capital and become

Persons who may petition-liquidation of companies, Persons Who May Petition...

Persons Who May Petition A petition may be presented by any of the following: A Creditor : A creditor may petition if his debt exceeds Shs 1,000 and is undisputed. The ord

Which inventory methods should used, 1) Which inventory methods are used by...

1) Which inventory methods are used by Lowe's? (Mark all that apply.) a. Weighted-average b. FIFO c. LIFO d. Dollar-value LIFO e. Retail LIFO f. Retail Dollar-value LIFO g. If mult

Bank reconciliation statement, in bank reconciliation statement what are th...

in bank reconciliation statement what are the statement to be reconcile

Discounted cash flow, XYZ Inc., an Ontario-based company on the cutting edg...

XYZ Inc., an Ontario-based company on the cutting edge of technology, is analyzing the possibility of providing university-level courses for York University. This virtual universit

Proposed dividends by subsidiary company, Proposed dividends by subsidiary ...

Proposed dividends by subsidiary company If the subsidiary company has proposed some dividends appearing under current liabilities then the dividends are payable to the holding c

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