Equivalent Annual Cost Calculator

How it is calculated

The tool spreads a purchase price over the asset's life as a level yearly cost. First it finds the annuity factor, AF = (1 − (1 + r)−n) ÷ r, where r is the discount rate as a decimal (8% becomes 0.08) and n is the life in years. Then EAC = initial cost ÷ AF. Initial cost is the purchase price in dollars. If the rate is 0 the factor is simply the number of years, so EAC is cost ÷ years. Years must be above zero (a fractional life such as 7.5 is accepted), the cost cannot be negative or empty, and a rate of −100% or below shows no result. The tool uses only the purchase price: running costs, repairs and resale value are not inputs, so add any known yearly costs on top of the result yourself or fold their present value into the initial cost.

Common mistakes

• Typing 0.08 for the discount rate. The rate field is in percent, so 8% is entered as 8; 0.08 would act as nearly zero and understate the yearly cost.
• Comparing two machines using only their purchase prices and EACs while ignoring different running costs. This tool covers the purchase price only, so add yearly operating costs before choosing.
• Using a very optimistic life. A longer life lowers the EAC, so check how the figure changes at a more cautious number of years.
• Expecting resale or scrap value to be subtracted. It is not an input; deduct its present value from the initial cost first if the asset will be sold.