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?
- annuity
- A stream of payments
- equivalent annual cost (eac)
- investment
- an asset or item acquired with the goal of generating income or appreciation.
- present value
- the 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
