Equivalent Annual Cost Calculator
Equivalent annual cost converts an asset's total present-value cost into a level annual figure, so you can compare options that last different numbers of years. Enter the net present value of the asset's costs, the discount rate, and the useful life in years. The calculator divides the present-value cost by the annuity factor to give the equivalent annual cost. The lower the EAC, the cheaper the option on an annual basis.
Equivalent annual cost formula
Annuity factor = (1 - (1 + r)^-n) / r
Equivalent annual cost = NPV of costs / annuity factor
where r = discount rate per year, n = life in years
When the discount rate is zero, the annuity factor is simply the number of years n, so the EAC is the present-value cost divided by n. The discount rate is entered as a percentage and converted to a decimal.
Worked example
NPV of costs $50,000, 8 percent discount rate, 5-year life:
- Annuity factor = (1 - 1.08^-5) / 0.08 = 3.992710.
- EAC = 50,000 / 3.992710 = $12,522.82 per year.
Equivalent annual cost: frequently asked questions
What is equivalent annual cost?
Equivalent annual cost (EAC) is the constant annual cash flow that has the same present value as an asset's total costs over its life. It lets you compare projects or assets with different useful lives on a like-for-like yearly basis. EAC equals the net present value of costs divided by the annuity present value factor.
Why not just compare total or present-value costs?
Because assets with different lifespans are not directly comparable. A machine costing more but lasting twice as long may be cheaper per year. EAC spreads each option's present-value cost into an equivalent level annual amount, so a 5-year and a 10-year option can be compared fairly.
What is the annuity factor in the formula?
The annuity present value factor for n years at rate r is (1 - (1 + r) to the power of minus n) / r. It converts a stream of equal annual payments into a single present value. Dividing the net present value of costs by this factor gives the level annual cost.
What discount rate should I use?
Use the rate that reflects the time value of money for the decision, often the firm's cost of capital or a required return. The rate is a user-editable input here because the appropriate figure depends on your situation; we do not assume one for you.
Official sources
- U.S. Securities and Exchange Commission, Investor.gov: Compound Interest Calculator.
- U.S. Securities and Exchange Commission, Investor.gov: Present Value.
Reviewed by the CalculatorHub team, edited by James Graham, 19 June 2026. See our methodology.