Equivalent annual cost

Also found in: Medical, Acronyms, Wikipedia.

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
References in periodicals archive ?
This work utilizes the equivalent annual cost (EAC) method because subsystems in both sorption systems and the solar PV system have unequal useful life spans.
Applications of the equivalent annual cost concept in mining.
The objective of this model is to minimize the equivalent annual cost (EAC) of meeting all the building cluster loads and additional imposed constraints.
This has an equivalent annual cost of nearly $11.3 million, based on a discount rate of 2.25 percent over 10 years.
The most plausible existing method for calculating this opporunity cost calls for charging the new project with the equivalent annual cost (EAC) of a plant for each year that diversion of capacity is estimated to cause a capacity shortage for the original product.(10) With a plant life of L years, for example, the EAC is the annual payment on an L-year annuity whose present value is equal to the plant's initial investment outlay.