Equivalent annual cash flow approach can be used to determine the year in which the existing machine can be profitably replaced with a new machine.

Question

Quizplus · Accepted Answer

Equivalent annual cash flow approach calculates the equal annual cash flows that a company will receive over the years from an investment or replacement of an existing asset. By comparing the equivalent annual cash flows of the existing machine and the new machine, the company can determine the year in which the new machine will become more profitable than the existing machine.

Equivalent Annual Cash Flow Approach Can Be Used to Determine