What is a common solution used to compare projects with unequal economic lifespans?

When comparing projects with unequal economic lifespans, the equivalent annual annuity (EAA) method is particularly useful. The EAA converts the net present value (NPV) of a project into an annuity, which represents how much the project would generate per year over its lifespan. This standardization allows for a direct comparison between projects that may have significantly different durations.

Using the EAA, the financial performance of each project is expressed as an annual amount, facilitating a clearer evaluation. This is essential in cases where one project may have a longer life or different cash flow patterns, as the EAA levels the playing field, enabling decision-makers to assess which project provides better annual returns relative to its costs and time value of money.

While net present value is a useful metric in project evaluation, it does not take into account the duration of projects in a comparable manner without additional steps. The modified internal rate of return and profitability index are also valuable measures, but they can be less effective for directly comparing projects with varying lengths.