The Power of Formula

GillianB

Hi,

Can someone give me a refresher on "the power of" formula, I know I did it on a previous level, but that seems like a life away after all the exams Ive done since! Im coming up blank!
The formula in the book is ((1+3/97)^(365/30))-1x100 this equals 44%
Any help is greatly appreciated

crispy

It looks like from you formula posted you are attempting to work out the % cost of offering a customer settlement discount. Eg.A company offeres 30Days credit but the average customer is taking 65Days to make payment, the company considers the option of offering 2.5% discount for payment in 15Days. Cost of offering the discount:

No. of Days saved 65-15 = 50
365/50 = 7.3
(1.00/0.975)^7.3 = 1.203
1.203 - 1.000 = .203 Say 20.3 %

You can also use the power of function to work out Discount Factors, eg Discount Factor of 10 Years using 10% would be 1/1.1^10 = 0.3855. Present value of receiving £ 100 in 10years at 10% = £100 * 0.3855 = £38.55.

miterreader

cannot rememmber the question word for word but I was given various income & expenses relating to 2 properties & asked to calculate the taxable rental income due. One of the costs related to double glazed windows that had been installed to replace existing windows that had become rundown. I couldnt decide whether this should be treated as capital expenditure or whether it should be an allowable deduction from rental income. Double glazing could be perceived as enhancing the value of the property or it could be just repairing existing items- afterall the question did not state if the existing windows were double glazed?