Given Item A:Investment cost of $
a lifetime of periods
Maintenance cost = $
Given Item B:
Investment cost of $
a lifetime of periods
Maintenance cost = $
Cost of capital = %
Calculate the Equivalent Annual Cost
Calculate v:
| v = | 1 |
| 1 + Cost of Capital |
| v = | 1 |
| 1 + 0 |
| v = | 1 |
| 1 |
v = 1
Calculate Discount Factor for Item 1:
| a|0 = | (1 - vAsset Lifetime) |
| Cost of Capital |
| a|0 = | (1 - 1) |
| 0 |
| a|0 = | (1 - 1) |
| 0 |
| a|0 = | 0 |
| 0 |
a|0 = NAN
Excel or Google Sheets formula:
=PV(0,,-1)Calculate Discounted Investment 1:
| DI 1 = | Investment Cost |
| a|0 |
| DI 1 = | $ |
| NAN |
DI 1 = $nan
Calculate EAC for Item 1
EAC1 = DI 1 + Maintenance CostEAC1 = $nan + $
EAC1 = $nan
Calculate Discount Factor for Item 2:
| a|0 = | (1 - vAsset Lifetime) |
| Cost of Capital |
| a|0 = | (1 - 1) |
| 0 |
| a|0 = | (1 - 1) |
| 0 |
| a|0 = | 0 |
| 0 |
a|0 = NAN
Excel or Google Sheets formula:
=PV(0,,-1)Calculate Discounted Investment 2:
| DI 2 = | Investment Cost |
| a|0 |
| DI 2 = | $ |
| NAN |
DI 2 = $nan
Calculate EAC for Item 2
EAC2 = DI 2 + Maintenance CostEAC2 = $nan + $
EAC2 = $nan
Determine Conclusion:
We invest in Machine 2 since it has the lower EAC
What is the Answer?
We invest in Machine 2 since it has the lower EAC
How does the Equivalent Annual Cost (EAC) Calculator work?
Free Equivalent Annual Cost (EAC) Calculator - Given 2 Items/machines with an Investment Cost, expected lifetime, and maintenance cost, this will calculate the EAC for each Item/machine as well as draw a conclusion on which project to invest in.
This calculator has 7 inputs.
What 1 formula is used for the Equivalent Annual Cost (EAC) Calculator?
v = 1 / (1 + Cost of Capital)Discount Factor = (1 - vn) / Cost of Capital
For more math formulas, check out our Formula Dossier
What 4 concepts are covered in the Equivalent Annual Cost (EAC) Calculator?
annuityA stream of paymentsequivalent annual cost (eac)investmentan asset or item acquired with the goal of generating income or appreciation. present valuethe value in the present of a sum of money, in contrast to some future value it will have when it has been invested at compound interest.PV = FV/(1 + i)n
where I is the interest rate per period, PV = Present Value, and FV = Future Value
Equivalent Annual Cost (EAC) Calculator Video
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