Final answer:
The EUAB for given cash flows is determined by computing the present discounted value of each cash flow and summing them up to get the total present value. The present value formula accounts for the given interest rate and is applied to each future benefit to obtain the EUAB.
Step-by-step explanation:
To determine the Equivalent Uniform Annual Benefit (EUAB) for given cash flows, you must compute the present value of each cash flow for the time periods during which the benefits will be received. This involves using the formula to calculate the present discounted value of future profits. Once you have computed the present value of the individual benefits, you add them up to obtain the total present value of the cash flows. It's important to consider the given interest rate when performing these calculations.
For example, referring to Table C1, for each future benefit that is going to be received, the present value must be calculated using the formula that factors in the interest rate. Subsequently, as indicated by the bond example, to determine the worth of a cash flow in the present, you apply the present value formula using the given discount rate, which is the interest rate used to calculate the present value of future cash flows.