Equivalent Real Annual Costs: Evaluating Investment Alternatives with Unequal Lives Under

Abstract

This paper provides a criterion that can be applied to evaluate mutually exclusive investment options with different economic lives in an inflationary environment. This criterion - denoted as the equivalent real annual cost procedure - is more computationally efficient thatn the alternative "replacement chain" approach. Moreover, the equivalent real annual cost method is remarkably similar in its calculations and in its intuitive appeal to the well known equivalent annual cost method.