Please explain a scenario in which the equivalent annual cost (EAC) approach would be a helpful approach to determining which project to choose. Additionally, please calculate the NPV for option A and option B. Which option would you use? (FINANCE 3400 CHAPTER 12)
FOR EXAMPLE: (GIVE A EXPLANATION LIKE THIS EXAMPLE)
Equivalent annual cost (EAC) is the annual cost of owning, operating, and maintaining an asset over its entire life.
EAC is often used by firms for capital budgeting decisions, as it allows a company to compare the cost-effectiveness of various assets that have unequal lifespans.
EAC allows managers to compare the net present values of different projects over different periods, to accurately determine the best option.