Explore BrainMass

Explore BrainMass

    Equivalent Annual Annuity

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Please review attachment

    Your firm has the opportunity to choose between the following two mutually exclusive projects:

    Expected Net Cash Flows
    Year Project S Project L
    0 -500,000 -575,000
    1 295,000 183,500
    2 295,000 183,500
    3 183,500
    4 183,500

    The projects provide a necessary service, so whichever project is selected that project is expected to be repeated into the foreseeable future. Both projects have a 10 percent cost of capital. Calculate the EAA for both projects and your rationale in selecting the best project.

    © BrainMass Inc. brainmass.com June 4, 2020, 1:35 am ad1c9bdddf
    https://brainmass.com/business/capital-budgeting/equivalent-annual-annuity-408832

    Attachments

    Solution Summary

    This solution illustrates how to compute the equivalent annual annuity for two projects.

    $2.19

    ADVERTISEMENT