Problem:
You are considering the following 2 mutually exclusive projects. Using the equivalent annual annuity method and a cost of capital of 10%, which project should be selected. (Round to nearest $)
Project A Project B
Year Cash Flow Cash Flow
0 (20,000) (20,000)
1 15,000 5,000
2 20,000 10,000
3 15,000
4 50,000
a. Project B because of an EAA of $12,060
b. Project A because of an EAA of $5,857
c. Project B because of an EAA of $38,320
d. Project A because of an EAA of $10,165