Using our earlier example of an initial investment amount of $1,000, a 5% interest rate and a two-year period (assuming annual compounding), the FV formula returns the same $1,102.50 calculated above. Fundamentally, future value is how much an investment made today will be worth at some point in the future. Therefore, future value is critical…
As mentioned, one way to make closing entries is by directly closing the temporary balances to the equity or retained earnings account. Accounts are considered “temporary” when they only accumulate transactions over one single accounting period. Temporary accounts are closed or zero-ed out so that their balances don’t get mixed up with those of the…
The cost of capital is often calculated by a company’s finance department and used by management to set a discount rate (or hurdle rate) that must be beaten to justify an investment. The cost of capital becomes all the more critical in the fiercely competitive Indian financial market where efficient resource allocation is a must…
This is a common method when the company is providing several repeated units of the same type at a predictable cost, but the amount of units to be completed is still uncertain. Some contracts with this method might include a price cap to protect buyers from paying too much as the project scope increases. Below…