(Answered) 1 when would you calculate the equivalent annual annuity

Finance

1. When would you calculate the Equivalent Annual Annuity (EAA), or EAC? What is it that you are calculating when identifying the EAA and how would you make a financing decision based on the EAA for two different projects?

2. A simple project has the following cash flows:

Year 0 1 2 3 4 5 6

Cash Flows -$150,000 $25,000 $30,000 $35,000 $40,000 $45,000 $50,000

The cost of capital for this project is estimated at 12%.

a) Should the project be accepted for this cost of capital?

b) If the cost of capital is estimated at 10% rather than at the above 12%, would be the project be accepted?

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