Given Item A:
Investment cost of $500.00
a lifetime of 3 periods
Maintenance cost = $120.00
Given Item B:
Investment cost of $600.00
a lifetime of 4 periods
Maintenance cost = $100.00
Cost of capital = 10%
Calculate the Equivalent Annual Cost
Calculate v:
| v = | 1 |
| 1 + Cost of Capital |
| v = | 1 |
| 1 + 0.1 |
| v = | 1 |
| 1.1 |
v = 0.9091
Calculate Discount Factor for Item 1:
| a3|0.1 = | (1 - vAsset Lifetime) |
| Cost of Capital |
| a3|0.1 = | (1 - 0.90913) |
| 0.1 |
| a3|0.1 = | (1 - 0.751337340571) |
| 0.1 |
| a3|0.1 = | 0.248662659429 |
| 0.1 |
a3|0.1 = 2.4866
Excel or Google Sheets formula:
Excel or Google Sheets formula:=PV(0.1,3,-1)Calculate Discounted Investment 1:
| DI 1 = | Investment Cost |
| a3|0.1 |
| DI 1 = | $500.00 |
| 2.4866 |
DI 1 = $201.08
Calculate EAC for Item 1
EAC1 = DI 1 + Maintenance Cost
EAC1 = $201.08 + $120.00
EAC1 = $321.08
Calculate Discount Factor for Item 2:
| a4|0.1 = | (1 - vAsset Lifetime) |
| Cost of Capital |
| a4|0.1 = | (1 - 0.90914) |
| 0.1 |
| a4|0.1 = | (1 - 0.6830407763131) |
| 0.1 |
| a4|0.1 = | 0.3169592236869 |
| 0.1 |
a4|0.1 = 3.1696
Excel or Google Sheets formula:
Excel or Google Sheets formula:=PV(0.1,4,-1)Calculate Discounted Investment 2:
| DI 2 = | Investment Cost |
| a4|0.1 |
| DI 2 = | $600.00 |
| 3.1696 |
DI 2 = $189.30
Calculate EAC for Item 2
EAC2 = DI 2 + Maintenance Cost
EAC2 = $189.30 + $100.00
EAC2 = $289.30
Determine Conclusion:
We invest in Machine 2 since it has the lower EAC
You have 2 free calculationss remaining
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.
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
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
Equivalent Annual Cost (EAC) Calculator Video
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