Financial Calculators

# Equivalent Annual Cost Calculator

Use this free online tool to calculate the equivalent annual cost, which is a measure of the true cost of owning an asset over its lifetime.

#### Equivalent annual cost (EAC) Calculator

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## Equivalent Annual Cost – EAC Meaning

The annual cost of operating, owning, and maintaining an asset for its entire lifetime is called the Equivalent Annual Cost (EAC). EAC is often used by firms to make capital budgeting decisions. It allows companies to compare the cost-effectiveness and lifespans of different assets.

## Understanding the Equivalent Annual Cost (EAC)

EAC (equivalent annual cost) can be used for many purposes including capital budgeting. It is most commonly used to analyze multiple projects with differing lifespans. Costs are the most important variable.

EAC can also be used to calculate the life expectancy of an asset, determine if it is better to lease or purchase an asset, determine the impact of maintenance costs on an asset, determine the cost savings necessary for purchasing new equipment, and determine the cost of maintaining existing equipment.

The EAC calculation includes a discount rate and the cost of capital. The cost of capital represents the return required to make a capital project (such as building a factory) worthwhile. Companies use the cost of capital to determine whether a capital investment is worthwhile. It includes both the debt and equity costs.

## The difference between the Equivalent Annual Cost (and the Whole-life Cost

The total cost of ownership The total cost of an asset's entire life, including the purchase and disposal costs, is determined by financial analysis. It's also called a "life cycle" cost. This includes the costs of purchase, installation, design, building, maintenance, financing, depreciation, disposal, and other costs.

The whole-life cost includes certain costs that are often overlooked, such as those related to social and environmental impact factors.

The equivalent annual cost (EAC), is the annual cost for owning, operating, and maintaining an asset throughout its life. While the whole life cost refers to the total cost of the asset during its entire lifetime.

## Limitations on Using the Equivalent Annual Price

EAC has a limitation. As with all capital budgeting decisions, the discount rate or cost capital must be calculated for each project. The forecast may not be accurate or the variables could change over time.

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###### Equivalent Annual Cost Calculator English

Published: Tue Mar 29 2022

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