Finance

Equivalent Annual Cost

Equivalent Annual Cost

Equivalent Annual Cost (EAC) is the annual cost associated with owning an asset over its whole life. Equivalent annual cost is normally used by firms for capital having a budget decisions. EAC is normally used as a decision making tool with capital budgeting when comparing investment projects associated with unequal lifespans. On the other hand, the projects being compared should have equal risk: normally, EAC must not provide.