A Method Which Involves Calculating the Annual Cash Flow of an Annuity

question 3

Multiple Choice

A method which involves calculating the annual cash flow of an annuity that has the same life as the project and whose present value equals the NPV of the project is:

• A)the chain of replacement method.
• B)the equivalent annual value method.
• C)the constant chain of replacement method.
• D)none of the given options.

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Definitions:

Common Stock

Shares entitling their holder to dividends that vary in amount and may even be omitted, unlike preferred stock which has a fixed dividend.

Book Value

The net value of a company's assets as shown on its balance sheet, calculated as total assets minus intangible assets and liabilities.

Equity Method

An accounting technique used to record an investment in another company, where the investment is initially recorded at cost and subsequently adjusted to reflect the investor's share of the net profit or loss of the investee.

Net Income

The total earnings of a company after subtracting all expenses from revenues, also known as the bottom line.