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Jung-Hua, Hung; Yong-Chin, Liu
International journal of management, 06/2005, Letnik: 22, Številka: 2Journal Article
This paper introduces an alternative approach known as capitalized cost method mentioned by Knox, Zima and Brown (1993) for a firm to evaluate investment projects. We employ this method to select mutually exclusive projects with unequal lives and operating costs. The capitalized cost of an asset is the total present values of its full net costs that an asset spends over its life. We show the total present value of equivalent annual costs (EAC) equals the capitalized cost of an asset that could be replaced for infinite periods. The capitalized cost method is simpler and easier than the EAC method, and seems to be preferable for selecting projects with unequal economic lives. PUBLICATION ABSTRACT
