Equivalent Annual Cost (EAC) Calculator — Compare Assets With Different Lives
The true yearly cost of two machines, vehicles or appliances with different prices, running costs and lifetimes, so the cheaper one over time is clear.
Results
The dashed line marks the value you entered.
What this tool does
Comparing the total cost of a cheap item that lasts 6 years with a dearer one that lasts 10 is misleading, and so is comparing present values over different spans. The equivalent annual cost turns each option's whole-life cost — price, running costs and resale, all discounted at your cost of money — into a level yearly amount, as if you paid it every year for ever and replaced the item when it wore out. The option with the lower EAC is the cheaper one over time. It assumes you would replace each option with an identical one and that running costs fall at year end.
Formula
EAC = [price + running costs × annuity factor − resale ÷ (1+r)ⁿ] ÷ annuity factor (annuity factor = (1 − (1+r)⁻ⁿ) ÷ r)
Variables
| Symbol | Meaning | Unit |
|---|---|---|
p1 | Option A: purchase price | — |
c1 | Option A: running cost per year | — |
n1 | Option A: life in years | a |
s1 | Option A: resale value at the end | — |
p2 | Option B: purchase price | — |
c2 | Option B: running cost per year | — |
n2 | Option B: life in years | a |
s2 | Option B: resale value at the end | — |
r | Discount rate (your cost of money) | % |
EA | Equivalent annual cost of A | — |
EB | Equivalent annual cost of B | — |
DF | B minus A, per year | — |
ST | Cheaper per year | — |
PA | Present value of A's costs over its life | — |
PB | Present value of B's costs over its life | — |
Worked example
- Option A: purchase price30,000
- Option A: running cost per year2000
- Option A: life in years10 a
- Option A: resale value at the end5000
- Option B: purchase price18,000
- Option B: running cost per year3200
- Option B: life in years6 a
- Option B: resale value at the end2000
- Discount rate (your cost of money)6 %
- Equivalent annual cost of A5697
- Equivalent annual cost of B6574
- B minus A, per year877
- Cheaper per yearOption A
- Present value of A's costs over its life41,928
- Present value of B's costs over its life32,326
Limitations
- This is an informational calculator, not personalised financial advice. Rates, fees, taxes and contract conditions vary between institutions and countries.
- The tool works with whatever currency you use for the inputs; it does not convert between currencies.