The present value of the total costs over a five year period for Project April is $50,000.The net present value of total costs over a 4 year period for Project October is $40,000.The company uses a discount rate of 9%.Which project should it choose and why?
A)April because it has a higher net present value (NPV).
B)April because is has a higher equivalent annual cost (EAC).
C)October because it has a shorter life.
D)October because it has a lower equivalent annual cost (EAC).

Question

Quizplus · Accepted Answer

The equivalent annual cost (EAC) is a measure that allows comparison of projects with different lifespans. Project October has a lower net present value of costs over a shorter period, which results in a lower EAC, making it the more cost-effective choice.

The Present Value of the Total Costs Over a Five