Share
Explore BrainMass

Equivalent Annual Annuity for projects with unequal length

Two Projects with unequal length and cost of capital 10%. Which is the best project and please show the steps how to solve for equivalent annual annuity in unequal projects.

Yr. 0 Project 1: ($150,000) Project 2: ($200,000)
1 $80,000 $40,000
2 $60,000 $50,000
3 $50,000 $50,000
4 $60,000
5 $50,000
6 $53,000

Please show steps to solve.

Solution Preview

Two Projects with unequal length and cost of capital 10%. Which is the best project and please show the steps how to solve for equivalent annual annuity in unequal projects.

Yr Project 1 Project 2
0 ($150,000) ($200,000)
1 $80,000 $40,000
2 $60,000 $50,000
3 $50,000 $50,000
4 $60,000
5 $50,000
6 $53,000
PVIFA= Present Value Interest Factor for an Annuity
It can be read from tables or calculated using the following equation
PVIFA( n, r%)= =[1-1/(1+r%)^n]/r%

Step 1: Calculate the NPV of each project

Net Present ...

Solution Summary

Calculates Equivalent Annual Annuity for two projects with unequal length.

$2.19