EQUIVALENT ANNUAL ANNUITIES

1. Black Sheep broadcasting is considering a five year-project that has a weighted average cost of capital of 12% and a net present value (NPV) of $56,489. Black sheep broadcasting can replicate this project indefinitely.

What is the equivalent annual annuity (EAA) for this project?

a. $13,320

b. $19,589

c. $15,671

d. $14,104

2. An analyst will need to use the EAA approach to evaluate projects with unequal live when the projects are ________.

a. Mutually exclusive OR

b. Independent