Equivalent Annual Cost - EAC

Short-term costs are pretty easy to calculate. Maybe you spend $50 on groceries every month. But what about long-term costs? If you get a mortgage, you’d want to know what it’s costing you every month or year...not just what it cost up front. This is where the equivalent annual cost (EAC) comes in.

Equivalent annual cost (EAC) is a calculation that tells you how much it costs to own and maintain an asset per year for the lifetime of the asset. Calculating your EAC of a big asset will allow you to treat your big asset like a short-term cost, in the sense that you can now add it to your budget (which is kind of important).

EAC is also important before you buy a big asset, since it can be useful for comparison shopping. The EAC calculation is:

Asset price x (discount rate / 1 - (1 + Discount rate) - periods) + Annual maintenance costs

We're sure you've already got it committed to memory.