APPLICATIONOF

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.

APPLICATIONShould 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-:

It is the interestRate per period.

Number of periodsIn the annuity.

Payment madeeach period.

Required FutureValue.

It indicates when thePayment 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