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Click on each question to check your answer.
1. What is the major goal in annual cash flow analysis?
The major goal in annual cash flow analysis is to change money to an equivalent uniform annual cost or benefit. (p. 178)
2. What role does salvage value play in annual cash flow analysis?
Salvage value is the value of an asset at the end of the useful life. If the value is positive, it reduces the equivalent uniform annual cost. (p. 179)
3. How can you compare the annual cash flows of competing projects with unequal life?
We can compare the annual cash flows based on a common multiple of the alternative lives of the competing projects. (p. 183)
4. How can we resolve the issue of an alternative project with a finite useful life in an infinite analysis period situation?
It is assumed that if the identical replacement is often correct, then the equivalent uniform value may be computed for the limited life. (p. 184)
5. In what circumstance is the difference between a long-life alternative and a perpetual alternative insignificantly small?
It is when n equals ∞. (p. 184)