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EAB is not a standard acronym and so I do not know what you are meaning.
EAC is standard and is explained in my free lectures.
Okay sir, By EAB i mean “Equivalent Annual Benefit”. I don’t have any confusion related to this topic but i was wondering why both of them have same formula for calculation.
Because the annuity factor is relevant for equal cash flows each year – whether they are inflows or outflows makes no difference, we would still multiply the flow by the annuity factor to get the PV.
Calculating the equivalent annual amount is just using the annuity factor in reverse.
Have you watched my free lectures on investment appraisal with replacement, where I explain the logic behind what we do? The lectures are a complete free course for Paper FM and cover everything needed to be able to pass the exam well.
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