APPLICATION OF P.V. RATIO
What is P.V. Function ? In Excel, the PV function returns the present value of an investment based on an interest rate and a constant payment schedule. It’s Syntax requires-: Interest rate for investment, Number of payments, Amount of payment for each period, Future value of payment.
APPLICATION Should Mr.X pay Rs11,000 today for a machine or Rs3,000 a year for 5 years? In this question we need to compare two investments, and find out which one would be better, To find out let us assume that here cost of capital is 12% per annum.
The Syntax of P.V. Function is-: Number of periods In the annuity.
It is the interest Rate per period.
Payment made each period.
Required Future Value.
It indicates when the Payment is made, it is Either 0 or 1.
SPREADSHEET
CONCLUSION Therefore it can be inferred that making payments at the end of the year is a better deal than paying out Rs11,000 today.
Aayush Agnihotri-17/069