Snail Theatre needs to close all of their theatres to remodel and update the virtual reality rooms. Snail theatre advisors presented two renovation alternatives:

(1) a quick facelift or

(2) a complete rebuild.

The quick facelift would cost $20 million, would generate annual after-tax cash flows of $4.25 million per year on completion, and would last only 9 years until another facelift was needed. The complete rebuild would cost $40 million, would also generate annual cash flows of $4.25 million per year on completion, and would last 13 years until another renovation was needed. Assume Snail theatre always renovates their theatres when needed.

What is the Equivalent Annual Annuity (EAA) for the option theatre should choose? Assume a cost of capital of 6.0%.

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