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What is the capital recovery factor?

Capital recovery factor definition

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.

Key takeaways

  • The capital recovery factor is a ratio used to determine the present value of a series of equal cash payments made at regular intervals, commonly known as annuities.

  • Capital recovery occurs when initial investment funds are earned back; the factor serves as an effective cost analysis tool used by start-ups and investors to assess investment success.

  • The ratio translates the present value of successive payments over time, taking into account the time value of money and representing equivalent present value of future cash flows.

  • The formula CRF = i(1+i)n / (1+i)n-1 (where n equals number of annuities) is related to the annuity formula involving present value, interest rate, and number of 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.