5.3. Conclusion

Try these first

1. 1.

   What is the capital recovery factor used for?

   Hint

   Think about what it means to pay off a loan.

2. 2.

   Define the sinking fund factor.

   Hint

   Consider how you save for large purchases.

3. 3.

   What does the capital recovery factor allow you to determine?

   • Future payments
   • Loan repayment schedules
   • Total investment

   Hint

   Consider the repayment process.

4. 4.

   True or False: The present worth factor and the sinking fund factor are identical.

   • True
   • False

   Hint

   Think about their different purposes.

5. 5.

   You are planning to purchase a new truck costing $100,000. If you want to save for it over 5 years at an interest rate of 4%, what annual amount should you deposit into a sinking fund?

   Hint

   Use the sinking fund formula for your calculations.

6. 6.

   You expect to receive $8,000 at the end of each year for 10 years. If the discount rate is 6%, what is the present worth of these cash flows?

   Hint

   Remember to factor in the discounting based on the annual returns.