Capital Budgeting & Portfolio ManagementMCQQuestion 5763 of 6
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Which of the following methods is used to evaluate projects with different lives?

Options

ANet Present Value (NPV)
BInternal Rate of Return (IRR)
CEquivalent Annual Cost (EAC)
DPayback Period
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Correct Answer

✅ Option C — Equivalent Annual Cost (EAC)

All Options:

  • ANet Present Value (NPV)
  • BInternal Rate of Return (IRR)
  • CEquivalent Annual Cost (EAC) ✓
  • DPayback Period

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Detailed Solution & Explanation

The Equivalent Annual Cost (EAC) method is used to evaluate projects with different lives. This method involves calculating the present value of the costs of each project and then converting them to an equivalent annual cost. This allows for a direct comparison of projects with different lives, enabling the selection of the most cost-effective option.
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