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Version 1.9, September, 2006, Copyright 2004 by Barringer & Associates, Inc., Humble, TX 77347, USA
For information contact Paul Barringer, P.E., Barringer & Associates, Inc. http://www.barringer1.com hpaul@barringer1.com
This sheet is prepared for simple engineering calculations as an aid for making engineering decisions.
Check with your local accountant for specific details before making financial decisions of great importance.
Paul Barringer, P.E.
Ph: 281-852-6810
FAX: 281-852-3749
Email: hpaul@barringer1.com
Website: http://www.barringer1.com
LCC Worksheet is a simple net present value calculation sheet for your use.
LCC Example 1 is a short problem using Excel Solver (Tools/Solver) to find the maximum allowed capital expendit
LCC Example 2 is a typical worksheet example for a single alternative.
er1.com hpaul@barringer1.com
reat importance.
Capital Costs:
Acquisition Costs:
Program Management Costs
Engineering Design Costs
Engineering Data Costs
Spare Parts & Logistics Costs
Facilities & Construction Costs
Initial Training Costs
Technical Data Costs
Documentation Costs
Annual recuring costs
Other periodic costs
Disposal Costs
Savings:
Annual Savings (use positive #s)
0
1
2
3
Capital equipment
$0
Costs
$0
$0
$0
$0
Savings
$0
$0
$0
Straight Line Depreciation
$0
$0
$0
Profit Before Taxes
$0
$0
$0
$0
Tax Provision @ 38% Of Profit Before Tax
$0
$0
$0
$0
Net Income can be profit or loss
$0
$0
$0
$0
Add Back Depreciation
$0
$0
$0
Cash Flow (Net Income + Depreciation)
$0
$0
$0
$0
Discount Factors @ 12%
1.0000
0.8929
0.7972
0.7118
Present Value
$0
$0
$0
$0
Net Present Value
$0
Internal Rate Return
<--Requires at least one positive and one negative number in the present value ro
Year-->
38%
10
10
$0
$0
$0
$0
$0
$0
$0
$0
0.6355
$0
$0
$0
$0
$0
$0
$0
$0
$0
0.5674
$0
$0
$0
$0
$0
$0
$0
$0
$0
0.5066
$0
$0
$0
$0
$0
$0
$0
$0
$0
0.4523
$0
$0
$0
$0
$0
$0
$0
$0
$0
0.4039
$0
$0
$0
$0
$0
$0
$0
$0
$0
0.3606
$0
$0
$0
$0
$0
$0
$0
$0
$0
0.3220
$0
10
11
12
13
14
15
16
17
11
12
13
14
15
16
17
$0
$0
$0
$0
$0
$0
$0
$0
0.2875
$0
11
$0
$0
$0
$0
$0
$0
$0
$0
0.2567
$0
12
$0
$0
$0
$0
$0
$0
$0
$0
0.2292
$0
13
$0
$0
$0
$0
$0
$0
$0
$0
0.2046
$0
14
$0
$0
$0
$0
$0
$0
$0
$0
0.1827
$0
15
$0
$0
$0
$0
$0
$0
$0
$0
0.1631
$0
16
$0
$0
$0
$0
$0
$0
$0
$0
0.1456
$0
17
18
19
20
18
19
20
$0
$0
$0
$0
$0
$0
$0
$0
0.1300
$0
18
$0
$0
$0
$0
$0
$0
$0
$0
0.1161
$0
19
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
21
22
23
24
$0
$0
$0
$0
$0
$0
$0
$0
0.1037
$0
20
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
25
26
27
28
29
30
31
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
Exceeds
Project Life
$0
32
33
34
35
Capital Costs:
Capital Acquisition Costs
Acquisition Costs:
Program Management Costs
Engineering Design Costs
Engineering Data Costs
Spare Parts & Logistics Costs
Facilities & Construction Costs
Initial Training Costs
Technical Data Costs
Documentation Costs
Annual recuring costs
Other periodic costs
Disposal Costs
Savings:
Annual Savings (use positive #s)
$1,319,500
$1,319,500
$1,319,500
$1,319,500
0
1
2
3
4
Capital equipment
$3,497,367
Question: How much capital can we afford to
Costs
$0
$0
$0
$0
$0
Given a 20 year project life, 12% discount rat
Savings
$1,319,500 $1,319,500 $1,319,500 $1,319,500
Hint:
Straight Line Depreciation
$174,868
$174,868
$174,868
$174,868
1) Input annual savings of $1,319,500 in the
Profit Before Taxes
$0 $1,144,632 $1,144,632 $1,144,632 $1,144,632
2) Put $1 in cell D5 for initializing the calculat
Tax Provision @ 38% Of Profit Before Tax
$0
-$434,960
-$434,960
-$434,960
-$434,960
Set the
iterative process
for Goal Seek to
Net Income can be profit or loss
$0
$709,672
$709,672
$709,672
change calculations$709,672
to Automatic, place
Add Back Depreciation
$174,868
$174,868
$174,868
3) Click on$174,868
cell F3 for IRR
and notice that it re
Cash Flow (Net Income + Depreciation) -$3,497,367
$884,540
$884,540
$884,540
Excel $884,540
needs to work
on a formula where
Discount Factors @ 12%
1.0000
0.8929
0.7972
0.7118 click on
0.6355
4) Click on Tools,
Goal Seek,
Present Value
-$3,497,367
$789,768
$705,150
$629,598
$562,141
set cell: C34 <--remember this is wher
Net Present Value
$3,109,654
to value: 25% <--you can also use 0.25
bynegative
changing
cell: D5.
start
with
$1
Internal Rate Return
25.00%
<--Requires at least one positive and one
number
in the<--we
present
value
row
38%
te Of Return
5
$1,319,500
5
$1,319,500
6
$1,319,500
7
$1,319,500
8
$1,319,500
9
10
$1,319,500
11
$1,319,500
10
12
$1,319,500
11
12
$0
$1,319,500 $1,319,500 $1,319,500 $1,319,500 $1,319,500 $1,319,500 $1,319,500 $1,319,500
$174,868
$174,868
$174,868
$174,868
$174,868
$174,868
$174,868
$174,868
ngs of $1,319,500 in the yellow boxes of row 19 for each of the 20 years.
$1,144,632 $1,144,632 $1,144,632 $1,144,632 $1,144,632 $1,144,632 $1,144,632 $1,144,632
for initializing the calculations using Excel Goal Seek Tool to find how much capital we can afford.
-$434,960
-$434,960
-$434,960 by-$434,960
-$434,960
-$434,960
-$434,960
-$434,960
process for Goal
Seek to perform
more accurately
clicking on Tools,
Options,
Calculation,
and
$709,672
$709,672
$709,672
$709,672
$709,672
$709,672
$709,672
$709,672
ons to Automatic, place check mark in Iterations, change Max Iterations = 1000: Max Change = 0.0001
$174,868
$174,868
$174,868
$174,868
$174,868
$174,868
$174,868
$174,868
or IRR and notice that it refers to the formula in cell C34--this is an important clue because
$884,540
$884,540
$884,540
$884,540
$884,540
$884,540
$884,540
$884,540
work on a formula
where as cell
F3 only reports
the results.
0.5674
0.5066
0.4523
0.4039
0.3606
0.3220
0.2875
0.2567
ick on Goal Seek,
$501,912
$448,135
$400,121
$357,251
$318,974
$284,798
$254,284
$227,039
<--remember this is where the formula is located
n?
001
13
$1,319,500
13
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.2292
$202,714
14
$1,319,500
14
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.2046
$180,994
15
$1,319,500
15
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.1827
$161,602
16
$1,319,500
16
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.1631
$144,288
17
$1,319,500
17
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.1456
$128,828
18
$1,319,500
18
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.1300
$115,025
19
$1,319,500
19
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.1161
$102,701
20
$1,319,500
20
$0
$1,319,500
$174,868
$1,144,632
-$434,960
$709,672
$174,868
$884,540
0.1037
$91,697
###
Capital Costs:
Capital Acquisition Costs
Acquisition Costs:
Program Management Costs
Engineering Design Costs
Engineering Data Costs
Spare Parts & Logistics Costs
Facilities & Construction Costs
Initial Training Costs
Technical Data Costs
Documentation Costs
Annual recuring costs
Other periodic costs
Disposal Costs
0
$75,000
Given a 20 year project life, 12% discount rate, and 38% tax rate.
Equipment cost $75,000. Annual sustaining cost = $12,264/yr. Overhaul cos
costs = $5,000 in year 20.
What is the net present value of the project? NPV=($125,465) and must
find the most favorable NPV (this often means selection of the LEAST negati
have two negative NPV's from two alternatives, you would select the least ne
positive NPV "delta" between the alternatives.
$12,264
$12,264
$12,264
$12,264
$12,264
Savings:
Annual Savings (use positive #s)
0
1
2
3
4
5
Capital equipment
$75,000
Costs
$0 $12,264 $12,264 $12,264 $12,264 $12,264
Savings
$0
$0
$0
$0
$0
Straight Line Depreciation
$3,750
$3,750
$3,750
$3,750
$3,750
Profit Before Taxes
$0 -$16,014 -$16,014 -$16,014 -$16,014 -$16,014
Tax Provision @ 38% Of Profit Before Tax $0
$6,085
$6,085
$6,085
$6,085
$6,085
Net Income can be profit or loss
$0
-$9,929
-$9,929
-$9,929
-$9,929
-$9,929
Add Back Depreciation
$3,750
$3,750
$3,750
$3,750
$3,750
Cash Flow (Net Income + Depreciation)
-$75,000
-$6,179
-$6,179
-$6,179
-$6,179
-$6,179
Discount Factors @ 12%
1.0000
0.8929
0.7972
0.7118
0.6355
0.5674
Present Value
-$75,000
-$5,517
-$4,926
-$4,398
-$3,927
-$3,506
Net Present Value
-$125,465
Internal Rate Return
<--Requires at least one positive and one negative number in the present value row 32
10
11
12
13
14
$12,264
6
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.5066
-$3,130
$12,264
7
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.4523
-$2,795
$12,264
8
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.4039
-$2,495
$12,264
9
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.3606
-$2,228
$12,264
$20,000
10
$32,264
$0
$3,750
-$36,014
$13,685
-$22,329
$3,750
-$18,579
0.3220
-$5,982
$12,264
11
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.2875
-$1,776
$12,264
12
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.2567
-$1,586
$12,264
13
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.2292
-$1,416
$12,264
14
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.2046
-$1,264
15
$12,264
16
$12,264
17
$12,264
18
$12,264
19
$12,264
20
$12,264
$5,000
15
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.1827
-$1,129
16
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.1631
-$1,008
17
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.1456
-$900
18
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.1300
-$803
19
$12,264
$0
$3,750
-$16,014
$6,085
-$9,929
$3,750
-$6,179
0.1161
-$717
20
$17,264
$0
$3,750
-$21,014
$7,985
-$13,029
$3,750
-$9,279
0.1037
-$962