How it works
PV cost = purchase + PV annual running costs − discounted salvage. Divide PV cost by the ordinary-annuity present-value factor.
Input definitions
- Purchase cost
- Enter the value in the labeled unit.
- Annual running cost
- Enter the value in the labeled unit.
- Salvage value at end
- Enter the value in the labeled unit.
- Annual discount rate (%)
- Enter the value in the labeled unit.
- Useful life (whole years)
- Enter the value in the labeled unit.
A worked example
- Purchase cost
- 1000
- Annual running cost
- 100
- Salvage value at end
- 0
- Annual discount rate (%)
- 0
- Useful life (whole years)
- 5
Assumptions & limits
End-of-year running costs and salvage; constant discount rate and useful life. Comparisons assume assets can be replaced on comparable terms.
Sources & review
Maintained by AnsRio. Methods and examples use automated checks; this does not imply independent professional certification.
Method updated 2026-10-17. Content checked against the stated method and examples. Our verification approach.
Common questions
Can I compare assets with different useful lives?
EAC expresses each asset’s modeled costs as a constant yearly amount. Use a consistent discount rate and service requirement; repeatability of replacements and future cost changes still need judgment.
Are these investment and borrowing results guaranteed?
No. These are deterministic estimates from the inputs and stated method, not predicted returns or lending offers. Actual fees, tax, timing and contractual terms may differ.
How does the Equivalent annual cost (EAC) tool work?
PV cost = purchase + PV annual running costs − discounted salvage. Divide PV cost by the ordinary-annuity present-value factor.
What are the assumptions and limits of Equivalent annual cost (EAC)?
End-of-year running costs and salvage; constant discount rate and useful life. Comparisons assume assets can be replaced on comparable terms.