Investments glossary

Equivalent Annual Annuity Approach (EAA)

The equivalent annual annuity approach is one of two methods used in capital budgeting to compare mutually exclusive projects with unequal lives. The EAA approach calculates the constant annual cash flow generated by a project over its lifespan if it was an annuity. When used to compare projects with unequal lives, an investor should choose the one with the higher EAA.

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