Capital Recovery Factor

The Capital Recovery Factor (CRF) is a formula used to calculate the amount needed to recover an investment over time, typically in the form of equal annual payments. The CRF is often applied in financial planning and capital budgeting to determine how much must be earned annually to recover the initial investment (or capital) along with interest. It is calculated using the formula: CRF = (r × (1 + r)^n) / ((1 + r)^n – 1) where r is the interest rate and n is the number of periods.

Example

If a company invests $100,000 in a project and expects to recover the investment over 5 years with an interest rate of 6%, the CRF can be used to calculate the annual payments required to recover the initial investment.