Under the Equivalent Annual Value Method,the Criterion for Project Acceptance

question 1

Multiple Choice

Under the equivalent annual value method,the criterion for project acceptance is:

• A)the project with the higher equivalent annual value is preferred.
• B)the project with the lower equivalent annual value is preferred.
• C)the project with the shorter life is preferred.
• D)the project with the higher equivalent annual value is preferred,provided that both projects have the same cost of capital.

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Definitions:

Present Value

The present-day worth of an anticipated future sum or series of cash payments, calculated using a specific interest rate.

Discounted Value

The present value of a future amount of money or stream of cash flows given a specified rate of return.

Interest Rates

The cost of borrowing money, typically expressed as a percentage of the amount borrowed, paid by the borrower to the lender for the use of their funds.

Future Consumption

The concept of saving resources or income in the present in order to consume or utilize in the future, reflecting economic planning and saving behavior.