A project has an initial outlay of $2,555. The project will generate cash flows of $3,249 in Years 1-5. What is the Equivalent Annual Annuity (EAA) of this project? Assume an interest rate of 14%.
Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. If your answer is negative, enter your answer as a negative number rounded off to two decimal points.
NPV = PV of Cash Inflows - Initial Outlay
= [$3,249 * {(1 - 1.14-5) / 0.14}] - $2,555
= [$3,249 * {0.4806 / 0.14}] - $2,555
= [$3,249 * 3.4331] - $2,555
= $11,154.08 - $2,555 = $8,599.08
EAA = NPV / [{1 - (1 + r)-n} / r]
= $8,599.08 / [{1 - (1 + 0.14)-5} / 0.14]
= $8,599.08 / [0.4806 / 0.14]
= $8,599.08 / 3.4331
= $2,504.77
A project has an initial outlay of $2,555. The project will generate cash flows of $3,249...
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