Performing Time Value Analysis
Suppose a rock quarry needs equipment to use the next five years.
It has two alternatives:
- A box loader and conveyer system that has a one-time
cost of $264,000.
- A two-shovel loader which costs $84,000 but has a
yearly operating cost of $36,000. This loader has a service life of
three years, which necessitates the purchase of a new loader for the final
two years of the rock quarry project. Assume the second loader
also costs $84,000 and its salvage value after its two-year service is
$10,000. A SAS dataset that describes this is available at
SASHELP.ROCKPIT.
You expect a 13% MARR.
Which is the better alternative?
To create the cashflows, follow these steps:
- Create a cashflow with the single amount -264,000. Date the amount
01JAN1998 to be consistent with the dataset you load.
- Load SASHELP.ROCKPIT into a second cashflow, as displayed
in Figure 10.2.
Figure 10.2: The contents of SASHELP.ROCKPIT
To compute the time values of these investments, follow these steps:
- Select both cashflows.
- Select Analyze
Time Value.... This opens the
Time Value Analysis dialog box.
- Enter the date 01JAN1998 into the Dates area.
- Enter 13 for the Constant MARR.
- Click Create Time Value Summary.
Figure 10.3: Performing the Time Value Analysis
As shown in Figure 10.3,
option 1 has a time value of -$264,000.00 naturally on 01JAN1998.
However, option 2 has a time value of -$263,408.94, which is slightly less
expensive.
Copyright © 2000 by SAS Institute Inc., Cary, NC, USA. All rights reserved.
