please answer completely and correctly all questions obGuid-ONAPCDA301010000003a
ID: 2783488 • Letter: P
Question
please answer completely and correctly all questions
obGuid-ONAPCDA301010000003alf926e01200008kct-mayest-00068ck-m 15102024 59396 0AAA05 C Q Search raded Assignment Due Thursday 11 16 17 at 09:00 PM Attempts: 1 Keep the Highest: 1/2 17. Equivalent annual annuities A Aa 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 Three Waters Boatbuilders: Three waters Boatbuilders is considering a four-year project that has a weighted average cost of capital of 13% and a net present value (NPV) of $89,567. Three Waters Boatbuilders can replicate this project indefinitely What is the equivalent annual annuity (EAA) for this project? O $27,101 O $34,629 O $30,112 O $33,123 projects are An analyst will need to use the EAA approach to evaluate projects with unequal lives when the mutually exclusiveExplanation / Answer
The formuale for equivalent annual annuity is
=(rate*NPV)/(1-(1+r)^-n)
Here r=13% NPV=89567 n=4
=(13%*89567)/(1-(1.13^-4)))
=30,112
it is option C
For mutuallu exclusive projects where we need to select one among the two projects
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