Equivalent Annual Cost (EAC) Calculator

Formula

The formula to calculate the equivalent annual cost is:

\[ EAC = \frac{AP \times DR}{1 - (1 + DR)^{-n}} \]

Where:

$ EAC $ is the equivalent annual cost
$ AP $ is the asset price
$ DR $ is the discount rate
$ n $ is the number of periods

What is Equivalent Annual Cost (EAC)?

Equivalent annual cost (EAC) is a measure of the true cost of owning an asset over its lifetime. It allows for the comparison of different assets with varying lifespans and costs by converting their total costs into an equivalent annual amount.

Example Calculation

Let's assume the following values:

Asset Price (AP): $10,000
Discount Rate (DR): 0.05
Number of Periods (n): 5

Using the formula to calculate the equivalent annual cost:

\[ EAC = \frac{10000 \times 0.05}{1 - (1 + 0.05)^{-5}} \approx 2309.36 $/year \]

The equivalent annual cost is approximately $2309.36 per year.