A method which involves calculating the annual cash flow of an annuity that has the same life as the project and whose present value equals the NPV of the project is:
A)the chain of replacement method.
B)the equivalent annual value method.
C)the constant chain of replacement method.
D)none of the given options.

Question

Quizplus · Accepted Answer

The method described in the question is called the equivalent annual value method. It is used to convert a project's NPV into an annual cash flow that represents the same economic value. This method is useful in comparing projects with different lives and investment amounts. The chain of replacement method and the constant chain of replacement method are incorrect answers as they are not related to the method described in the question.

A Method Which Involves Calculating the Annual Cash Flow of an Annuity