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Annual Equivalent Cost Formula

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Annual Equivalent Cost represents a uniform annual cost that would be equivalent to the costs associated with the project over its lifespan. Check FAQs

AEC = \frac{ASP \cdot DR}{1 - {(1 + DR)}^{- n}}

AEC - Annual Equivalent Cost?ASP - Asset Price?DR - Discount Rate?n - Number of Periods?

Annual Equivalent Cost Example

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With units

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Here is how the Annual Equivalent Cost equation looks like with Values.

Here is how the Annual Equivalent Cost equation looks like with Units.

Here is how the Annual Equivalent Cost equation looks like.

5916.9811 = \frac{10000 \cdot 0.12}{1 - {(1 + 0.12)}^{- 2}}

5916.9811 = \frac{10000 \cdot 0.12}{1 - {(1 + 0.12)}^{- 2}}

5916.9811 = \frac{10000 \cdot 0.12}{1 - {(1 + 0.12)}^{- 2}}

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Annual Equivalent Cost Solution

Follow our step by step solution on how to calculate Annual Equivalent Cost?

FIRST Step Consider the formula

AEC = \frac{ASP \cdot DR}{1 - {(1 + DR)}^{- n}}

Next Step Substitute values of Variables

∴

AEC = \frac{10000 \cdot 0.12}{1 - {(1 + 0.12)}^{- 2}}

Next Step Prepare to Evaluate

∴

AEC = \frac{10000 \cdot 0.12}{1 - {(1 + 0.12)}^{- 2}}

Next Step Evaluate

∴

AEC = 5916.98113207547

LAST Step Rounding Answer

∴

AEC = 5916.9811

Annual Equivalent Cost Formula Elements

Variables

Annual Equivalent Cost

Annual Equivalent Cost represents a uniform annual cost that would be equivalent to the costs associated with the project over its lifespan.

Symbol: AEC

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Annual Equivalent Cost

Asset Price

Asset Price refers to the current market value or the price at which a particular asset, such as a stock, bond, real estate property, or commodity, can be bought or sold in the market.

Symbol: ASP

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Asset Price

Discount Rate

Discount Rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve Bank’s discount window.

Symbol: DR

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Discount Rate

Number of Periods

Number of Periods is the periods on an annuity using the present value, periodic payment, and periodic rate.

Symbol: n

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Number of Periods

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How to Evaluate Annual Equivalent Cost?

Annual Equivalent Cost evaluator uses Annual Equivalent Cost = (Asset Price*Discount Rate)/(1-(1+Discount Rate)^-Number of Periods) to evaluate the Annual Equivalent Cost, The Annual Equivalent Cost formula is defined as a financial metric used in capital budgeting to evaluate the annual cost of an investment or project over its entire lifespan, considering factors such as initial investment, operating expenses, salvage value, and depreciation. Annual Equivalent Cost is denoted by AEC symbol.

How to evaluate Annual Equivalent Cost using this online evaluator? To use this online evaluator for Annual Equivalent Cost, enter Asset Price (ASP), Discount Rate (DR) & Number of Periods (n) and hit the calculate button.

FAQs on Annual Equivalent Cost

What is the formula to find Annual Equivalent Cost?

The formula of Annual Equivalent Cost is expressed as Annual Equivalent Cost = (Asset Price*Discount Rate)/(1-(1+Discount Rate)^-Number of Periods). Here is an example- 5916.981 = (10000*0.12)/(1-(1+0.12)^-2).

How to calculate Annual Equivalent Cost?

With Asset Price (ASP), Discount Rate (DR) & Number of Periods (n) we can find Annual Equivalent Cost using the formula - Annual Equivalent Cost = (Asset Price*Discount Rate)/(1-(1+Discount Rate)^-Number of Periods).

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Annual Equivalent Cost Formula

Annual Equivalent Cost Example

Annual Equivalent Cost Solution

Annual Equivalent Cost Formula Elements

Other formulas in Basics of Financial Accounting category

How to Evaluate Annual Equivalent Cost?

FAQs on Annual Equivalent Cost

Variable Name