Equivalent annual cost

EAC converts the present value of an asset's costs into a comparable annual amount by dividing by the relevant annuity factor. It helps compare replacement cycles with different lives when the service is required on an ongoing basis and repetition on comparable terms is a reasonable assumption. Include acquisition, operating and disposal cash flows with consistent tax and discounting treatment. Choose the lowest EAC for equivalent service. If alternatives produce different benefits or cannot be repeated, a simple cost comparison may be inappropriate; examine the full economic alternatives.