Analysis of the Net Present Value and Equivalent Annual Cost in Optimal Machine Life

Xuefei Cui; Yuqing Li; Xiaole Wang; Ziyi Wang

doi:10.2991/aebmr.k.220307.477

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Analysis of the Net Present Value and Equivalent Annual Cost in Optimal Machine Life

Authors

Xuefei Cui¹^{, *}^{, †}, Yuqing Li²^{, †}, Xiaole Wang³^{, †}, Ziyi Wang⁴^{, †}

¹Business School, University of Exeter, EX4 4PU, Exeter, UK

²Business School, The University of New South Wales,NSW 2196, Sydney, Australia

³School of Business, Hong Kong Metropolitan University, Hong Kong 999077, China

⁴Business School, Imperial College London, SW7 2AZ, London, UK

^†

These authors contributed equally.

^*Corresponding author. Email: xc325@exeter.ac.uk

Corresponding Author

Xuefei Cui

Available Online 26 March 2022.

DOI: 10.2991/aebmr.k.220307.477 How to use a DOI?
Keywords: Net Present Value; Equivalent Annual Cost; Optimal Machine Life
Abstract: Both net present value (NPV) and equivalent annual cost (EAC) are appropriate methods for modifying an investment project. While Net Present Value may assist investors in evaluating the project’s cash flows, EAC illustrates the cost of several projects over a year. The purpose of this research is to discover whether one of the two metrics, NPV or EAC, is superior. Net Present Value is the difference between the present value of cash flows and the present value of cash flows after a period. The annual cost of ownership, operation, and maintenance are equivalent. To establish whether NPV or EAC is the more appropriate technique for adjusting investment projects, this essay use them to estimate the optimal machine life. After evaluating the calculation procedure for this issue and using these two approaches, the findings indicate that EAC is more appropriate for investment projects with varying durations. These findings imply that net present value is more appropriate for estimating the cost of a project over a specified period; thus, when dealing with investments with varying life spans, equivalent annual cost is a better option than net present value.
Open Access: This is an open access article under the CC BY-NC license.

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Volume Title: Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
Series: Advances in Economics, Business and Management Research
Publication Date: 26 March 2022
ISBN: 978-94-6239-554-1
ISSN: 2352-5428
DOI: 10.2991/aebmr.k.220307.477 How to use a DOI?
Open Access: This is an open access article under the CC BY-NC license.

Cite this article

ris enw bib

TY  - CONF
AU  - Xuefei Cui
AU  - Yuqing Li
AU  - Xiaole Wang
AU  - Ziyi Wang
PY  - 2022
DA  - 2022/03/26
TI  - Analysis of the Net Present Value and Equivalent Annual Cost in Optimal Machine Life
BT  - Proceedings of the 2022 7th International Conference on Financial Innovation and Economic Development (ICFIED 2022)
PB  - Atlantis Press
SP  - 2929
EP  - 2933
SN  - 2352-5428
UR  - https://doi.org/10.2991/aebmr.k.220307.477
DO  - 10.2991/aebmr.k.220307.477
ID  - Cui2022
ER  -

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