Another method to deal with the unequal life problem of projects is the equivalent annual annuity $($EAA$)$ method. In this method the annual cash flows under the alternative investments are converted into a constant cash flow stream whose NPV is equivalent to the NPV of the comparative project$$s initial stream.

Consider the case of Three Waters Boatbuilders:

Three Waters Boatbuilders is considering a four$-$year project that has a weighted average cost of capital of $12\%$ and a net present value $($NPV$)$ of $$29,567.$ Three Waters Boatbuilders can replicate this project indefinitely.

The equivalent annual annuity $($EAA$)$ for this project is $.$

The EAA approach to evaluating projects with unequal lives do a good job of taking inflation into account.