A security company offers to provide CCTV coverage for a parking garage for ten years for an initial payment of $50,000 and additional payments of $20,000 per year. What is the equivalent annual annuity of this deal, given a cost of capital of 6%?

Question

Quizplus · Accepted Answer

The equivalent annual annuity (EAA) is calculated by finding the present value of the cash flows and then converting it into an annuity. The initial payment is $50,000, and the annual payments are $20,000 for 10 years. Using a 6% discount rate, the EAA is approximately -$26,793.

A Security Company Offers to Provide CCTV Coverage for a Parking