Investment Decision Rules - Evaluating Projects with Different Lives

3 important questions on Investment Decision Rules - Evaluating Projects with Different Lives

For what purposes is the equivalent annual annuity (EAA) used?

To compare projects with different live spans

What is the equivalent annual annuity?

The level of annual cash flow with the same present value as the cash flows of the project

How do you calculate the equivalent annual annuity of a cash flow?

You determine the cash flow needed to receive the NPV of the project over the time span of the project

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