Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Explain with example Annual Equivalent Cost Comparison with Unequal Project Lives?
Expert Solution
Step 1
Equivalent annual worth technique is the analysis technique that is used for taking capital budgeting decisions. It considers the time value of money while computing the annual worth for specified time and at given rate.
Step 2
Equivalent annual cost is the annual cost that is to be incurred for maintaining an asset for a given life. It can be calculated by dividing the net present value of the asset by the present value of annuity factor.
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