Capital Recovery Factor (CRF)
- A Capital Recovery Factor (CRF) converts a present value into a stream of equal annual payments over a specified time, at a specified discount rate (interest).
- The value of an equal payment (A) to be made in each of n periods here is given by:
A = P [i(1+i)n]/[(1+i)n-1]
That is, A = P x CRF
Where, CRF= capital recovery factor = [i(1+i)n]/[(1+i)n-1]
- The capital recovery factor can be interpreted as the amount of equal (or uniform) payments to be received for n years such that the total present value of all these equal payments is equivalent to a payment of one dollar at present, if interest rate is i.