Equivalent annual cost

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.
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