Equivalent annual annuity
Corcoran Consulting is deciding which of two computer systems to purchase. It can purchase state-of-the-art equipment (System A) for $23,000, which will generate cash flows of $8,000 at the end of each of the next 6 years. Alternatively, the company can spend $14,000 for equipment that can be used for 3 years and will generate cash flows of $8,000 at the end of each year (System B). If the company’s WACC is 5% and both “projects” can be repeated indefinitely, which system should be chosen, and what is its EAA?
Choose Project A
Whose EAA = $