The EAC framework is useful in settings where firms must choose between investments or equipment choices with differing lengths of economic life. When comparing equipment choices based on costs only, we ought to choose the choice associated with lower equivalent annual costs. When comparing equipment choices based on net cash flows, we should choose the choice associate with higher equivalent cash flows. Note that in EAC calculations, we need to first remove the effects of inflation from all the cash flows and rates of returns and use real cash flows and real interest rates. The reason for this requirement is that only in an inflation-free environment is it possible for the annual costs associated with a machine to be constant throughout the machine's economic life, as we assume in the EAC calculations