Equivalent annual cost

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Equivalent annual cost

The cost per year of owning an asset over its entire life.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.

Equivalent Annual Cost

The cost of an asset over the time it is held, expressed in annualized terms. It is calculated as:

EAC = (Price + Discount Rate) / (1 - (1 + Discount Rate)-Years Held)

The EAC may be compared to the revenue that the asset produces in a year to determine whether acquiring the asset is cost effective.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
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The total present worth and the equivalent annual costs calculated from equations in the article are used to compare the economics of the alternative processes and major process components in order to arrange for project funding and to obtain the design service.
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