The advantage(s) of the equivalent annual annuity method over the replacement chain technique in evaluating mutually exclusive investments having unequal lives include
A)the equivalent annual annuity method is often computationally simpler
B)the equivalent annual annuity method simplifies the handling of the time discrepancies that frequently arise in the replacement chain method
C)the equivalent annual annuity method is theoretically superior
D)a and b only

Question

Quizplus · Accepted Answer

The advantage(s) of the equivalent annual annuity method over the replacement chain technique in evaluating mutually exclusive investments having unequal lives are that the equivalent annual annuity method is often computationally simpler and simplifies the handling of time discrepancies that frequently arise in the replacement chain method. While the equivalent annual annuity method is not necessarily theoretically superior to the replacement chain technique, it is a more practical and efficient method for evaluating such investments. Therefore, choices A and B are correct, and the best answer is D.

The Advantage(s) of the Equivalent Annual Annuity Method Over the Replacement