Q464
In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as
A.
greater annual annuity method
B.
equivalent annual annuity
AnswerC.
lesser annual annuity method
D.
zero annual annuity method
Answer: Option B
Solution
Answer: Option B
Solution:
In alternative investments, constant cash flow stream is equal to initial cash flow stream in approach which is classified as equivalent annual annuity. The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. The EAA approach calculates the constant annual cash flow generated by a project over its lifespan if it was an annuity.