Mutually Exclusive Projects With Unequal Lives, Reinvestment Plans And Unequal Required Rates Of Return

Mutually Exclusive Projects With Unequal Lives, Reinvestment Plans And Unequal Required Rates Of Return

The equivalent annual annuity (EAA) approach is widely used when ranking mutually exclusive investment proposals with unequal lives that require reinvestments. EAA solutions are particularly prominent in some of the most popular introductory finance textbooks. We present a simple example showing tha...

Ausführliche Beschreibung

Gespeichert in:
Bibliographische Detailangaben
Veröffentlicht in:Journal of financial education 1997-10, Vol.23, p.81-83
Hauptverfasser: Beedles, William L., Joy, O. Maruice
Format: Artikel
Sprache:eng
Schlagworte:
Annuities
Capital budgeting
Cash flow
Estimated taxes
FINANCE PEDAGOGY
Investment decisions
Investment return rates
Net present value
Present value
Reinvestment
Required rates of return
Online-Zugang:Volltext
Tags: Tag hinzufügen
Keine Tags, Fügen Sie den ersten Tag hinzu!
Beschreibung
Zusammenfassung:The equivalent annual annuity (EAA) approach is widely used when ranking mutually exclusive investment proposals with unequal lives that require reinvestments. EAA solutions are particularly prominent in some of the most popular introductory finance textbooks. We present a simple example showing that when proposals also have unequal risks, and therefore unequal required rates of return, the EAA does not always provide correct investment decisions.
ISSN:0093-3961
2332-421X