Question

Select the correct answer from the terms provided to complete the sentences below. There are more answers than questions, therefore some of the items will remain unused. Study period Using the A/P factor for a large n value Same each period Their least common multiple of years Life cycle only Two life cycles of each one Multiplying by i. Uniform for all interest rates Effective interest rate Inflation or deflation rate Match each of the options above to the items below. The annual worth method of comparing alternatives converts the cash flows from one life cycle into an amount of money that is the ____________. The annual worth method of comparing alternatives converts the cash flows from one life cycle into an amount of money that is the ____________. Open choices for matching When comparing different-life alternatives by the annual worth method, the annual worth calculated using their LCM of lives will be the same as that calculated over one ______________. When comparing different-life alternatives by the annual worth method, the annual worth calculated using their LCM of lives will be the same as that calculated over one ______________. Open choices for matching When comparing different-life alternatives by the annual worth method, using the AW calculated over each one's life cycle assumes that the assets will be needed for _______________. When comparing different-life alternatives by the annual worth method, using the AW calculated over each one's life cycle assumes that the assets will be needed for _______________. Open choices for matching When comparing different-life alternatives by the annual worth method, using the AW calculated over each one's life cycle assumes that the cash flows in succeeding life cycles will change by exactly the _____________. When comparing different-life alternatives by the annual worth method, using the AW calculated over each one's life cycle assumes that the cash flows in succeeding life cycles will change by exactly the _____________. Open choices for matching The annual worth of a permanent investment can be determined from its capitalized cost by _________________.

Answer 1

The annual worth method is used to compare alternative investments by converting the cash flow into annual inflows and outflows during the life cycle of the project. In case the projects have different life cycles, to make comparison the annual worth is calculated using the LCM of lives of alternative projects. The annual worth calculated using the LCM of lives is equal to the annual worth calculated over the life cycle of the projects. The assumption here is that the assets will be needed for the LCM of years. The cash flows whether inflows or outflows are affected by the rate of inflation or deflation in the economy. A permanent investment having infinite life cycle can be compared using annual worth by multiplying it with interest rate, i.

1. The annual worth method of comparing alternatives converts the cash flows from one life cycle into an amount of money that is the same each period.

2. When comparing different-life alternatives by the annual worth method, the annual worth calculated using their LCM of lives will be the same as that calculated over one life cycle.

3. When comparing different-life alternatives by the annual worth method, using the AW calculated over each one's life cycle assumes that the assets will be needed for their least common multiple of years.

4. When comparing different-life alternatives by the annual worth method, using the AW calculated over each one's life cycle assumes that the cash flows in succeeding life cycles will change by exactly the inflation rate or deflation rate.

5. The annual worth of a permanent investment can be determined from its capitalized cost by multiplying by i.