Enter the asset price, discount rate, and the number of periods into the calculator to determine the equivalent annual cost.
The following formula is used to calculate an equivalent annual cost.
EAC = (AP * 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
EAC is defined as the equivalent annual cost and is a measure of the true cost of owning an asset over it’s lifetime.
How to calculate EAC.
- First, determine the asset price.
Calculate the initial price of the asset being purchase.
- Next, determine the life span of the asset.
This will be the number of periods referenced in the formula above.
- Next, determine the discount rate.
A discount rate is a measure of the return rate required to make a project worth the time.
- Finally, calculate the EAC.
Calculate the equivalent annual cost using the formula for EAC presented above.
EAC stands for equivalent annual cost. It’s a measure of the annual cost of owning and operating an asset over its lifetime.