EAC Machine A-105,0002.72 – $11,000 – $49,557 – “Begin,” “aligned” – “Text” “EAC Machine A” – ” frac” $5,000 $2.72 – $11,000 – $49,557 – $11,000 – 49,557 $ EAC-Asset Price×Discount1 (1-DiskRate)-nwhere:Disk Rate-Return needed to projectworthwhilen-number of periods `begin`aligned ` “text`EAC“ `frac`asset price` to establish the project, `text` `text` `number of periods` and `×`, determining the extent to which maintenance costs affect an asset , determine the savings needed to support the purchase of a new asset and determine the conservation costs of existing assets. By standardizing annual costs, a manager who is responsible for a capital budgeting decision, where cost is the only problem, would choose Machine B, since he has a lower ABC of $636 at Machine A. The corresponding annual cost (ABC) is the annual cost of holding, operating and maintaining an asset over its lifetime, while the total cost of living is the total cost of the asset over its lifetime. Equivalent annual costs (ABCEs) are used for many purposes, including capital budgeting. But it is most often used to analyze two or more possible projects with different lifespans, where cost is the most relevant variable. Next, we calculate the EAC, which corresponds to net worth (NET value) divided by the current value annuity factor or A (t,r), taking into account the capital or r costs and the number of years or t involved. In the case of CAAs, as in many capital budgeting decisions, the discount rate or cost of capital for each project must be estimated. Unfortunately, the prognosis may be imprecise or the variables may change over the life of the project or the life of the asset under consideration. Equivalent annual costs (ABC) are the annual costs of holding, operating and maintaining an asset over the lifetime. Companies often use ABCAs to decide on capital budgeting because they allow a company to compare the profitability of different assets with uneven lifespans. . The above formula must be based on the annuity factor or A (t,r) of each project. These calculations would be as follows: .