EAC - Estimated Annual Cost
EAC accepts expenses as input. Expense start time can be supplied. By default expense starts at t=0. Expense can repeat. Expense repetition can be supplied.
EAC computes NPV of expenses. Then, it calculates the EAC of the NPV at a given interest rate.
EAC is applicable to comparing maintenance of machines with unequal lives.
Example:
Compare 2 machines A and B
A:
t=0 expense 15
t=1 expense 4
t=2 expense 4
t=3 expense 4
Interest rate = 10%
NPV = 24.95
EAC = 10.03
B:
t=0 expense 10
t=1 expense 6
t=2 expense 6
Interest rate - 10%
NPV = 20.41
EAC = 11.76
Which machine is better?
Machine A is better than machine B due to lower EAC.