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Question 24.6: CAPITAL RECOVERY FACTOR The city has obtained a federal loan...

CAPITAL RECOVERY FACTOR

The city has obtained a federal loan of USD 500,000 for a water works renovation project. Determine the equal annual payments that will be necessary to amortize and repay the debt in 10 years at an interest rate of 4%.

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R = Ai(1 + i)^{10}/[(1 + i)^{n} − 1]
= 500,000 (1 + 0.04)^{10}/[(1 + 0.04)^{10} − 1]
= USD 61,666.

The city must repay the federal government USD 61,666 annually.

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