Question

One method that can be used to evaluate capital budgeting projects with different lives is to convert the project’s cash flows to a level annual cash flow that has the same present value as the project’s overall cash flows. This annual cash flow is known as the:

Answer 1

Answer: Equivalent annual annuity

Step-by-step explanation:

Equivalent annual annuity is the method used for capital budgeting for performing comparison between unequal lives and mutually explosive projects being carried out.

This approach considers project as annuities and then calculation of net worth of that project in present day is done.Through this process, annual cash is evaluated for different projects.It contains time value of money as an benefit.