Work out equivalent annual cost instantly with clear inputs, formula shown and shareable results.
Equivalent annual cost spreads the whole-life cost of an asset — purchase plus running costs — into a level yearly figure. It is the correct way to compare options with different lives, because a cheap short-lived asset must be replaced sooner.
EAC
EAC = PV(total costs) × CRF; CRF = 1 / [(1-(1+r)^-n)/r]
Present values favour short-lived assets because they ignore the cost of replacing them. EAC puts every option on a per-year footing.
Yes — subtract its present value from total costs before annualising.