The firm is evaluating two mutually exclusive projects (see information in the table below). Assume that the projects are equally risky. The cost of capital is 18%.

1. Calculate the effective annual annuity (EAA) for each project.

2. Using the EAA decision rule, which project should the firm choose?

\begin{tabular}{|l|l|l|} \hline & Project A & Project B \\ \hline Net present value & 20,000 & 25,000 \\ \hline Life cycle & 3 years & 5 years \\ \hline \end{tabular}