In finance, the equivalent annual cost (EAC) is the cost per year of owning and operating an asset over its entire lifespan. It is calculated by dividing the negative NPV of a project by the "present value of annuity factor":

${\displaystyle EAC={\frac {-NPV}{A_{t,r}}}}$, where ${\displaystyle {A_{t,r}}={\frac {1-{\frac {1}{(1+r)^{t}}}}{r}}}$

where r is the annual interest rate and

t is the number of years.

Alternatively, EAC can be obtained by multiplying the NPV of the project by the "loan repayment factor".

EAC is often used as a decision-making tool in capital budgeting when comparing investment projects of unequal lifespans. However, the projects being compared must have equal risk: otherwise, EAC must not be used.

The technique was first discussed in 1923 in engineering literature, and, as a consequence, EAC appears to be a favoured technique employed by engineers, while accountants tend to prefer net present value (NPV) analysis. Such preference has been described as being a matter of professional education, as opposed to an assessment of the actual merits of either method. In the latter group, however, the Society of Management Accountants of Canada endorses EAC, having discussed it as early as 1959 in a published monograph (which was a year before the first mention of NPV in accounting textbooks).