### What is Benefit to cost ratio?

Benefit to cost ratio is used to calculate the NPV in a proportion or ratio format. Here, the present value of future cash flows is calculated on proportion method, though, the method of calculation is similar to NPV method. Benefit to cost= Present value of investment/ present value (PV) of future inflows. If the ratio…

### What is Sinking Fund?

Sinking fund is also known as depreciation fund.  Sinking Fund is a fund into which a company sets aside its revenue over a period of time, in order to fund a future capital expense or used to replace the asset at the end of its useful life or for gradual repayment of company’s long-term debt.…

### What is Amortization of loan/debt?

Amortization is the process of paying off loan amount over a period with regular equal payment.  Now a day, it is common that banks fix number of equated monthly installments (EMI) for Home loans, consumer loans etc. for repayment of loan granted by them typically amortizing their loan. How it works? A portion of each…

### What are annuities and how to calculate annuities?

Annuity is a fixed sum of money paid to the investor or insurer to a series of annual sums for specific length of time or the rest of their life. In the case of reverse mortgage loan provided to senior citizen against security of their home is another example where loan amount is used to…

### What is EMI and how to calculate EMI?

EMI is acronym to an equated monthly installment (EMI). It is a fixed amount payable by a borrower to a lender at each calendar month at a stated date. Under this system the principal and interest thereon is repaid through equal monthly interest over the fixed tenure of the loan. EMI is fixed based on…

### How to calculate simple Interest?

When a lender grants loan to a borrower, he charges fee (interest) on money lent. The interest payable by the borrower may be simple interest or compound interest. Simple interest means interest charged at flat rate only on the principal amount. In the other words the interest will not be charged on the interest debited…

### How to calculate compound Interest?

The concept of compound interest or compounding interest is the interest is added back to the principal sum while charging interest for the next period so that interest is earned on that added interest. That is as a result of reinvesting interest, compound Interest (CI) / Cumulative Interest are calculated both on the principal amount…

### What are the three methods of depreciation and meaning of amortization?

(This article explains three methods of depreciation applied on fixed assets and the meaning of amortization and difference between depreciation and amortization.) Depreciation means writing off the value of an asset over a period of time due to wear and tear, age and obsolesces. There are three major methods of charging depreciation or recognition of the cost…