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The capital recovery factor converts

  • A.a future sum into its present value
  • B.a nominal rate into a real rate
  • C.a present sum into an equivalent series of annual payments
  • D.a series of annual payments into a present sum

Answer: C

It is the reciprocal of the annuity factor and is what a loan repayment calculation uses. Multiplying the capital cost by it and adding the annual running cost gives the equivalent annual cost, which is the cleanest way to compare options of unequal life.

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