Final answer:
When comparing projects with different lifespans, the project with the lower equivalent annual cost should be chosen as it typically signifies greater cost efficiency over time.
Step-by-step explanation:
When comparing projects with different lives, one should choose the project with the lower equivalent annual cost. This concept falls under the category of capital budgeting, a process in business financial management that involves evaluating potential investments or projects. The equivalent annual cost (EAC) is a tool used to compare the cost-effectiveness of projects with differing lifespans by normalizing their costs to an annual basis.
To accurately compare projects, especially when they have different lifespans, it is essential to determine the cost of each project per year. The project with the lower EAC will typically be more cost-efficient over time, assuming the benefits or returns are comparable. This method ensures that a consistent basis is used for comparison, regardless of the project duration.