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Ch 10: Assignment- The Basics of Capital Budgeting: Evaluating Cash Flows Back to Assignment Attempts...

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Ch 10: Assignment- The Basics of Capital Budgeting: Evaluating Cash Flows Back to Assignment Attempts Average/2 14. Equivalent annual annuities Another method to deal with the unequal life problem of projects is the equivalent annual armuty (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 f initial stream Consider the case of Lumbering Ox Truckmakers: Lumbering Ox Truckmakers is considering a five-year project that has a weighted average cost of capital of 12% and a net present value (NPV) of $56,489. Lumbering Ox Truckmakers can replicate this project indefinitely. The equivalent annual annuity (EAA) for this project is The EAA approach to evaluating projects with unequal lives do a good job of taking inflation into account, Grade It Now Save & Continue Continue without saving

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