Flashcards in Week 13 - Workshop Questions Deck (4)
What is the ‘Equal Annual Benefit Model’?
The Equal Annual Benefit Model allows for easy comparison between the NPV of a shorter and longer project.
How is the ‘Equal Annual Benefit’ calculated?
EAB = NPV x Cost of Capital/ 1-1/1.cost of capital (1.cost of capital is raised to the t)
How is an ‘Annual Cost of Capital’ converted into a monthly ‘cost of capital’?
((1+Cost of Capital)’1/12) - 1 = Monthly Discount Rate
(1/12 is raised)