The EUAC (Equivalent Uniform Annual Cost) Calculator is a powerful tool used in financial analysis to determine the annual cost of a project over its lifetime. It helps businesses and individuals make informed decisions about investments by converting the initial investment and recurring costs into a single, uniform annual cost.
Formula of EUAC Calculator
The EUAC is calculated using the following formula:
EUAC = (P/A, i, n) + A
Where:
- P = Present worth of the project (initial investment)
- A = Annual cost (uniform series)
- i = Interest rate per period (expressed as a decimal)
- n = Number of periods (usually years)
The (P/A,i,n) factor represents the conversion of the present worth P to an equivalent annual cost. This factor is calculated using the formula:
(P/A, i, n) = (1 – (1 + i)^-n) / i
You’ll first calculate the (P/A,i,n) factor using the second formula, then use it in the first formula to find the EUAC.
Table for General Terms
| Abbreviation | Term | Description |
|---|---|---|
| EUAC | Equivalent Uniform Annual Cost | Annual cost of a project, considering both initial investment and recurring costs |
| NPV | Net Present Value | Difference between the present value of cash inflows and outflows |
| ROI | Return on Investment | Ratio of profit or loss relative to the initial investment |
| IRR | Internal Rate of Return | Discount rate that makes the net present value of cash flows zero |
| PV | Present Value | Current worth of a future sum of money, discounted at a given rate |
| FV | Future Value | Value of an asset or investment at a specified date in the future |
| APR | Annual Percentage Rate | Annualized interest rate charged for borrowing or earned through investment |
| CAPM | Capital Asset Pricing Model | Model used to determine the expected return on an investment |
| PE | Price-to-Earnings Ratio | Ratio of a company’s share price to its earnings per share |
| GDP | Gross Domestic Product | Total value of goods and services produced by a country in a year |
This table provides a quick reference for understanding common financial abbreviations and their corresponding terms.
Example of EUAC Calculator
Let’s consider an example to understand how the EUAC Calculator works in practice.
Suppose a company is considering investing $10,000 in a project with an annual cost of $2,000, an interest rate of 5%, and a duration of 5 years.
Using the EUAC formula:
- Calculate the (P/A,i,n) factor: (P/A, 0.05, 5) = (1 – (1 + 0.05)^-5) / 0.05 ≈ 4.3295
- Calculate the EUAC: EUAC = (10,000 / 4.3295) + 2,000 ≈ $4,157.50 per year
Therefore, the equivalent uniform annual cost (EUAC) for this project is approximately $4,157.50 per year.
Most Common FAQs
The EUAC Calculator is used to determine the equivalent annual cost of a project, considering both the initial investment and recurring costs.
To use the EUAC Calculator, simply input the present worth, annual cost, interest rate, and number of periods, then click the calculate button to obtain the equivalent uniform annual cost.
Yes, the EUAC Calculator can be use for personal finance decisions, such as evaluating the cost of purchasing a car or a home over several years.
Yes, the EUAC Calculator is accurate for long-term investments as it considers the time value of money and provides a uniform annual cost over the investment period.