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Equivalent Annual Annuity
Convert a project's NPV into an Equivalent Annual Annuity (EAA) — a constant yearly amount — so you can fairly compare projects with different lifespans.
How to Use Equivalent Annual Annuity
- 1Calculate the project's NPV first (use the NPV Calculator)
- 2Enter that NPV
- 3Enter the discount rate used
- 4Enter the project's life in years
- 5Click Calculate to see the Equivalent Annual Annuity
Frequently Asked Questions
Raw NPV comparison is misleading when projects have different lifespans — a 10-year project with a higher NPV than a 5-year project might actually be less attractive per year. EAA spreads each project's NPV evenly across its own lifespan so you can compare them on equal footing.
Calculate it first using the NPV Calculator (with the project's initial investment, discount rate, and cash flows), then enter that NPV total here along with the project's life and the same discount rate.
A constant, equivalent annual cash flow that — if received every year for the project's life at the same discount rate — would produce exactly the same NPV as the project's actual, uneven cash flows.
For mutually exclusive projects with different lifespans that will be replaced/repeated, generally yes — higher EAA means more value created per year of the investment.
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