BIZOMAT MAKEOS · Money
Equivalent Annual Cost Comparison
Which of two machines or options has the lower equivalent uniform annual cost?
Equivalent uniform annual cost (EUAC) and capitalised cost of two alternatives with different first costs, running costs, salvage values and lives, at a discount rate.
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How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Discount rate | % | Your organisation’s approved discount rate (real or nominal, consistent with the costs). |
| Option A | ||
| First cost | AUD | Installed cost of option A. |
| Annual operating cost | AUD/yr | Yearly running cost of A (energy, maintenance, labour). |
| Salvage value | AUD | Value of A at the end of its life. |
| Life | years | Life of A in years. |
| Option B | ||
| First cost | AUD | Installed cost of option B. |
| Annual operating cost | AUD/yr | Yearly running cost of B. |
| Salvage value | AUD | Value of B at the end of its life. |
| Life | years | Life of B in years. |
What each input means
Open an input to see what it is, its units, the worked example and the common mistakes, with a small diagram.
What this means: Discount rate
- What it is
- The yearly rate used to put costs at different times on an equal footing, usually your organisation’s approved discount rate.
- Units and format
- Enter a number in %: percent: the number is read as a percentage, so type 8 for 8 %. The form accepts 0% to 100%. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 8% as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Get it right
- Type the percentage itself; use a real rate with constant prices or a nominal rate with escalated costs.
Option A
What this means: First cost
- What it is
- The up-front installed cost of option A: purchase, delivery, installation and commissioning.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 50000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher first cost raises option A’s capital recovery and its equivalent annual cost.
- Get it right
- Include installation and commissioning, not just the purchase price.
What this means: Annual operating cost
- What it is
- The yearly cost of running option A: energy, maintenance, labour and consumables.
- Units and format
- Enter a number in AUD/yr: Australian dollars per year. The form accepts 0 AUD/yr or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 12000 AUD/yr as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Adds directly to option A’s equivalent annual cost.
- Get it right
- Use the same cost items for both options so they compare fairly.
What this means: Salvage value
- What it is
- The amount you expect to recover for option A at the end of its life, by resale or scrap.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 5000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher salvage value lowers option A’s equivalent annual cost.
- Get it right
- Leave it at 0 if the item has no resale value or costs money to remove.
What this means: Life
- What it is
- The number of years option A will give service before it must be replaced.
- Units and format
- Enter a number in years: years. The form accepts 1 years to 100 years. Use a whole number. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 5 years as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A longer life spreads the first cost over more years.
- Get it right
- The comparison assumes each option is replaced like for like at the end of its life.
Option B
What this means: First cost
- What it is
- The up-front installed cost of option B: purchase, delivery, installation and commissioning.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 80000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher first cost raises option B’s capital recovery and its equivalent annual cost.
- Get it right
- Include installation and commissioning, not just the purchase price.
What this means: Annual operating cost
- What it is
- The yearly cost of running option B: energy, maintenance, labour and consumables.
- Units and format
- Enter a number in AUD/yr: Australian dollars per year. The form accepts 0 AUD/yr or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 8000 AUD/yr as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- Adds directly to option B’s equivalent annual cost.
- Get it right
- Use the same cost items for both options so they compare fairly.
What this means: Salvage value
- What it is
- The amount you expect to recover for option B at the end of its life, by resale or scrap.
- Units and format
- Enter a number in AUD: Australian dollars. The form accepts 0 AUD or more. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 10000 AUD as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A higher salvage value lowers option B’s equivalent annual cost.
- Get it right
- Leave it at 0 if the item has no resale value or costs money to remove.
What this means: Life
- What it is
- The number of years option B will give service before it must be replaced.
- Units and format
- Enter a number in years: years. The form accepts 1 years to 100 years. Use a whole number. Required: the tool does not calculate until every input is valid.
- Example
- The form opens with 10 years as a worked example. It is an illustration, not a recommended value: replace it with your own figure.
- Effect on the result
- A longer life spreads the first cost over more years.
- Get it right
- The comparison assumes each option is replaced like for like at the end of its life.
Method and formulas
- Capital recovery A/P = i(1 + i)ⁿ ÷ ((1 + i)ⁿ − 1); sinking fund A/F = i ÷ ((1 + i)ⁿ − 1).
- EUAC = P × (A/P) + annual cost − S × (A/F).
- Capitalised cost = EUAC ÷ i (perpetual like-for-like replacement).
- Example: EUAC is $23,671 for A and $19,232 for B at 8%.
Limitations
- Assumes each option is repeated like-for-like at the end of its life, with constant costs.
- Taxes, inflation and financing are not modelled unless built into the inputs.
- Example values are illustrations. Replace them with values for your actual task.
Typical uses
- Compare machines with different lives
- Decide between repair and replacement
- Compare a cheap short-life option with a durable one
Who it is for
- Engineering managers
- Project engineers
- Finance and business analysts
What you get
- EUAC of each option
- Annual saving of the cheaper option
- Capitalised cost (perpetual service)
Interpreting the result
- Choose the lower EUAC if both options meet the technical need equally.
References
- Machinery’s Handbook, 29th edition (Industrial Press, 2012), printed pp. 134–146. Topic reference; no source tables or recommended settings are reproduced.
BIZOMAT tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.