When Is It Appropriate to Use the EAC Methodology, and How

question 274

Essay

When is it appropriate to use the EAC methodology, and how do you make a decision using it?

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Definitions:

Average Accounting Return

A financial ratio that measures the net profit of a project or investment as a percentage of its initial cost.

Straight-line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal yearly amounts.

Net Income

The comprehensive earnings of a corporation after expenses and taxes have been taken away from its revenues.

Discount Rate

A rate used to determine the present value of future cash flows, reflecting the time value of money and risk of the cash flows.