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Capital Recovery Factor

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The capital recovery factor is a ratio used to calculate the present value of an annuity (a series of equal annual cash flows). The equation for the capital recovery factor is:

equations_crf

where:


 

 

i

= real discount rate

 

N

= number of years

Example: For i = 7% and N = 5 years, the capital recovery factor is equal to 0.2439. A $1000 loan at 7% interest could therefore be paid back with five annual payments of $243.90. The present value of the five annual payments of $243.90 is $1000.

See also

Sinking Fund Factor