Equivalent annual costs - part 1
Taught by Nick Drape · AI tutor support included
You'll learn how equivalent annual costs help you compare assets with different lifespans and determine optimal replacement cycles. This technique is essential for making sound capital investment decisions when assets have uneven cash flows or different useful lives.
This lesson is part of a paid course
Buy the course to unlock every video lesson and the AI Tutor, plus mock exams with feedback on CIMA courses.
Already bought? Sign in
Ask the AI tutor anything about this lesson
It knows every lesson in the course — explanations, clarifications, practice questions.
In this lesson
- 0:00 Equivalent annual costs explained
- 0:22 Two key business scenarios for EAC
- 1:14 Comparing assets with different lifecycles
- 1:18 Optimising replacement cycles
- 2:25 EAC formula and calculation method
- 3:40 Worked example: Machine A vs Machine B
- 6:32 Calculating EAC for both machines
- 10:22 Making the final replacement decision
About this lesson
In this first part, you'll discover why equivalent annual costs matter, explore the two main scenarios where they're applied, and work through the formula and a practical example comparing two machines with different costs and lifespans. By converting irregular cash flows into a standardised annual figure, you'll be able to make confident financial comparisons and recommend the best option for your business.
Duration: 11m
Transcript
Every lesson comes with a full searchable transcript - included with the course.
Get the P2 Objective Test course
All 121 video lessons, timed mock exams marked instantly with an explanation for every question, an AI Tutor in every lesson and lifetime access.
Already bought? Sign in