The equivalent annual NPV approach is used if:

Question

Quizplus · Accepted Answer

The equivalent annual NPV approach is used when projects have unequal lives. It involves calculating the net present value (NPV) of the cash flows for each project and then dividing the NPV by an annuity factor to get the equivalent annual NPV for each project. This allows for an apples-to-apples comparison of the projects over their unequal lives. If the projects have the same life, the regular NPV approach can be used without the need for equivalent annual calculations.

The Equivalent Annual NPV Approach Is Used If