Capital recovery factor
What is the capital recovery factor?
The capital recovery factor is the ratio used to determine the present value of a series of equal annual cash payments. The payments could be made weekly, monthly, quarterly, yearly, or at any other regular interval of time, and are commonly known as annuities.
Where have you heard about the capital recovery factor?
Capital recovery is when funds initially paid at the beginning of an investment are earned back. The capital recovery factor is an effective cost analysis tool, and is used by many start-up businesses and investors looking to determine the success of their investments.
What you need to know about the capital recovery factor.
The ratio translates the present value of successive payments over a fixed amount of time. The present value represents the equivalent value at the present of a set of future cash flows, taking into account the time value of money.
The formula for determining the capital recovery factor is:
CRF = i(1+i)n / (1+i)n-1. In this case, n is equal to the number of annuities received.
This formula is related to the annuity formula, which gives the present value in terms of the annuity, the interest rate, and the number of annuities.
Find out more about the capital recovery factor.
If you are interested in capital recovery factor then you can take a look at our page on annuity.