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  • BD22092 11

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    Sankalp Mishra
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    Equivalent Annual Benefit (EAB) and Equivalent Annual Cost (EAC) can both be used as accurate capital budgeting tools to rank projects effectively, as they will provide similar rankings. Both methods divide the net present value of a project by a conversion factor, either the project period for EAB or an annuity factor for EAC, to evaluate projects on an equivalent annual basis. The faculty confirmed that EAB and EAC are very similar methods that will rank projects in a comparable manner.

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    Equivalent Annual Benefit (EAB) and Equivalent Annual Cost (EAC) can both be used as accurate capital budgeting tools to rank projects effectively, as they will provide similar rankings. Both methods divide the net present value of a project by a conversion factor, either the project period for EAB or an annuity factor for EAC, to evaluate projects on an equivalent annual basis. The faculty confirmed that EAB and EAC are very similar methods that will rank projects in a comparable manner.

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    11 views1 page

    BD22092 11

    Uploaded by

    Sankalp Mishra
    Equivalent Annual Benefit (EAB) and Equivalent Annual Cost (EAC) can both be used as accurate capital budgeting tools to rank projects effectively, as they will provide similar rankings. Both methods divide the net present value of a project by a conversion factor, either the project period for EAB or an annuity factor for EAC, to evaluate projects on an equivalent annual basis. The faculty confirmed that EAB and EAC are very similar methods that will rank projects in a comparable manner.

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    Class Participation

    Date: 20th February, 2023


    Name: Sankalp Mishra (BD22092)
    Section: C

    Q. What is the accurate measure of capital budgeting tool that can be used to rank projects
    effectively in the Investment detective case

    My response: Equivalent Annual Benefit (EAB) can be used as an accurate measure of capital
    budgeting tool to rank projects effectively .

    Faculty response: Sir mentioned that EAB and EAA are very similar. Both EAA and EAB rank the
    projects in similar manner because in EAA, NPV is divided with period while in EAB, NPV is divided
    with annuity factor.

    Class Summary:
     A bond's interest rate risk is gauged by its duration.
     The Macaulay duration gauges how long it takes a bond to recoup its cost. It is calculated by
    weighting each cash flow by its present value and dividing by the total price.
     High Mountain Technologies case:
    NOPAT = Revenue-Expense-Tax + Depreciation/Ammortization - Capex - change in net
    working capital Increment needed when: Higher capacity, Inflation or structural issues +
    working capital claim back/Asset = Free cash flow to firm (FCFF)
     Sunk cost should not be adjusted in a new project unless it is affecting the existing cash flow

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