The equivalent annual annuity method replaces each mutually exclusive project with its own NPV, and then replaces that with an annuity having the same NPV. The project with the lowest annuity payment is then preferred.

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The equivalent annual annuity (EAA) method converts the net present value (NPV) of projects into an annuity. The project with the highest annuity payment, not the lowest, is preferred because it indicates the project generates more value per period.

The Equivalent Annual Annuity Method Replaces Each Mutually Exclusive Project