Equivalent annual method


Problem: When trying to determine between two seperate projects I understand that the EAM is the best tool. However I am not sure how to apply this.

I need to know in a step by step format how to calculate this and further how to use.

For example:

short-lived light bulbs last 2 years, cost is $5 and use of electricity is $5 annually
long-lived light bulbs last 5 years, cost is $10 and use $3 electricity annually

What would the true cost be if the discount rate = 10%?

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Finance Basics: Equivalent annual method
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