Equal Annual Return Formula

Equal Annual Return Formula

Equal annual return from a project may be calculated by applying annuity Factor. This concept has been explained with an example

Annual Return =         = Present Cash flow

                            Annuity Factor

  

Example

Project cost = 90,000

Term of project = 5 Years

Rate of Return = 12%

Calculate equal return from project?

Solution

Annuity Factor

= 1-(1.12)^-5

        .12

=3.6044

Annual Return

Annual Return =         = Present Cash flow

                        Annuity Factor

  

= 90,000/3.6044

=24,969