Equivalent Annual Cost Calculator
The Equivalent Annual Cost (EAC) calculator is a financial tool used to compare and evaluate different investment options or projects by converting their costs or cash flows into equal annual amounts.
The formula for calculating the EAC is as follows:
EAC = NPV * (r / (1 – (1 + r)^(-n)))
In this formula, NPV represents the net present value of the project’s cash flows, r represents the discount rate or the required rate of return, and n represents the project’s duration or number of years.
Let’s say we have a project with a net present value of $10,000, a discount rate of 8%, and a project duration of 5 years. Using the formula, the EAC would be:
EAC = $10,000 * (0.08 / (1 – (1 + 0.08)^(-5)))