14. Equivalent annual annuities Another method to deal with the unequal life problem of projects...
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14. Equivalent annual annuities Another method to deal with the unequal life problem of projects is the equivalent annual annuity (EAA) method. In this method the annual cash flows under the alternative investments are converted into a constant cash flow stream whose NPV is equivalent to the NPV of the comparative project's initial stream. Consider the case of Cold Duck Manufacturing Company: Cold Duck Manufacturing Company is considering a four-year project that has a weighted average cost of capital of 11% and a net present value (NPV) of $75,682. Cold Duck Manufacturing Company can replicate this project indefinitely What is the equivalent annual annuity (EAA) for this project? $24,394 $25,614 $26,833 $29,273 An analyst will need to use the FAA approach to evaluate projects with unequal lives when the projects are
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