Solution-Calculate the equivalent annual annuity

Calculate the equivalent annual annuity

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Reference no: EM132745154

The ABC Company is considering the purchase of the new equipment. It can buy either equipment A or equipment B, so the investment projects are mutually exclusive. Assume that both projects can be repeated indefinitely. Equipment A has an NPV of €20,000 over a 3-year life, and Equipment B has an NPV of €25,000 over a 5-year life. The project types are equally risky, and the firm's cost of capital is 12%.

1) Calculate the equivalent annual annuity (EAA) for each project;

2) Using the EAA approach, determine which project should be chosen.

Reference no: EM132745154

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Calculate the equivalent annual annuity

Reference no: EM132745154

Reference no: EM132745154

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