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ChargeOut - Forest Products Laboratory - USDA Forest Service

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					CHARGEOUT!                           A financial analysis approach to machine costing
             By E.M. (Ted) Bilek, Economist
                U.S. Department of Agriculture, Forest Service, Forest Products Laboratory
                One Gifford Pinchot Drive
                Madison, Wisconsin 53726-2398
                Tel.: (608) 231-9507
                email: tbilek@fs.fed.us

CHARGEOUT! is a spreadsheet-based model that can aid in determining the financial feasibility of capital equipment
  It was meant to accompany the Forest Products Laboratory general technical report GTR-171, which can be found at
  www.fpl.fs.fed.us/documnts/fplgtr/fpl_gtr171.pdf.
  CHARGEOUT! was designed for the timber industry to calculate break even charge-out rates for capital equipment.
  The break-even charge-out rate will return exactly the owner's after-tax required return on capital.
  Given a charge-out rate, the model calculates profitability and return on investment based on discounted cash flows.
. The model performs an after-tax, inflation-adjusted cash flow analysis

The model is flexible.
• Users can easily and quickly change variables and determine the impact on financial feasibility.
• Equipment can have a different economic life than its depreciable life.
• Financing can be incorporated with the loan life independent of the economic and depreciable lives.
• Depreciation rates may be changed according to standard depreciation schedules, or custom
   rates may be used.
• Maintenance and repairs costs may be estimated or entered each year in a custom function.
• Terminal value estimates can, but do not have to be indexed to inflation.
• Equipment is assumed to wear out at the end of its economic life, which may be different than its
   depreciable life.
• Key costs and revenues may be individually entered, rather than being automatically
   inflation-adjusted, if desired.
• Fuel and oil consumption may be entered directly. Alternatively, the figures may be based on the calculations
   in the separate "Fuel & oil calculations" worksheet.

The model is powerful.
• Used in conjunction with Excel's "Goal Seek" algorithim, break-even analysis may be run
   on most variables.
• Fixed operating costs and variable operating costs may be uniformly increased or decreased by
   varying the fixed or variable operating costs sensitivity factors upwards or downwards from 100%,
• Built-in sensitivity analysis at the bottom of the ChargeOut worksheet tests for changes in key variables.

The model provides useful results.
• Standard financial measures, net present value and internal rate of return, are calculated
   before tax and finance, before tax, and after tax.
• Yearly summaries may be used for marketing and budgeting purposes. Yearly summaries include:
   — Cash flows;
   — Productivity measures;
   — Physical input requirements; and
   — Physical outputs by product type.
• The break-even charge-out rate shows how much must be charged for the capital equipment
   and just make its specified after tax return on invested capital.
• Summary charts show discounted costs and annual cash flows.
The model is organized for ease of use.
• The most important Summary Financial information is at the top of the CHARGEOUT! worksheet.
• All assumptions that may be changed are entered in blue.
• The most important information is at the top of the ChargeOut! worksheet. The main assumptions come next.
• Inflation is incorporated into the model. If the user chooses automatic inflation-adjustment,
   the revenues and costs, apart from depreciation, will automatically increase at the rate of inflation.
• Extensive error and warning messages designed to aid in the interpretation of the results
   may appear, depending on the input assumptions.
machine costing
                        version 1.03




f capital equipment
hich can be found at

or capital equipment.

counted cash flows.
                                                                                                   Page 4                                                                                        ChargeOut1.03.xls




CHARGEOUT!                  A financial analysis approach to machine costing                                          version 1.03                                                                 19-Apr-10
  E.M. Bilek      USDA Forest Service, Forest Products Laboratory, Madison, Wisconsin 53726-2398       email: tbilek@fs.fed.us                                        Cells in BLUE may be changed.
Rubber-tired grapple skidder                      Demonstration data

Summary Financial Measures:                                                                                                                                                 Year 1 Charge-out Rates:
                                                  Before-tax                                                                                              Per…      scheduled       productive
                                                  & finance    Before-tax   After-tax                                                                                 hour             hour           ton
                                            NPV $      (8,436) $   (2,664) $ 4,267                                                   Inflation-adjusted charge-out $     45.00      $    67.16    $     6.72
                                       IRR (real)        5.3%        6.1%         5.1%      IRR Seed                                               B-E charge-out        44.35           66.20    $     6.62
                                   IRR (nominal)         8.5%        9.3%         8.2%            10%                                                   Difference $      0.65      $     0.96    $     0.10


                                                                                                                                                     Charge-out rates change annually by…          Inflation
WARNING! These financial measures are subject to your ability to take an immediate tax credit in at least one of your operating years. See the taxes in the cash flow table.

Other Financial Information:                                                   Required Returns on Invested Capital (ROIC):
                                   Loan principal $    111,600                                  Equivalent annual… Before-tax         After-tax
                          Monthly loan payments $        3,549                                  Real required ROIC     6.84%                3.62%
              Equivalent annual loan interest rate       9.38%                              Nominal required ROIC     10.04%                6.73%
            Equivalent annual deposit interest rate      3.04%                       Annual percentage rate (APR)…
                  Average capital invested (ACI) † $   130,320                                 Real required ROIC           6.63%          3.56%
                                                                                            Nominal required ROIC           9.61%          6.53%
                                                                                                                                                    Percent of Discounted Gross Revenue:
                                                                                                                                                                         Net ownership costs           29.7%
                                                             Gross                                                                                      Fixed operating costs & loan interest          11.3%
Annualized Revenue Calculations:                            revenue                                                                                                  Repairs & maintenance             23.7%
                                 Equalized annual actual $ 101,570                                                                                         Other variable op. costs and taxes          34.3%
                             Equalized annual break-even      100,112                                                                                                 Additional profit (loss)          1.0%
                                               Difference $     1,458                                                                                                                   Total         100.0%



                                                                  —————————————————— Year ——————————————————
Summary Cash Flows                                     0               1            2            3            4            5              6              7              8
               Cash flow before tax and financing $ (186,000) $ 34,731 $ 36,283 $                42,740 $ 45,660 $ 85,236 $                     - $        -      $             -
                             Cash flow before tax $    (74,400) $      (7,856) $ (6,303) $          154 $ 45,660 $ 85,236 $                     - $        -      $             -
                               Cash flow after tax $   (74,400) $ 24,332 $ (11,318) $            (8,141) $ 35,740 $ 62,256 $                    - $        -      $             -
WARNING! You are getting a tax credit in year 1. See the taxes in the cash flow table. In order to take the Section 179 deduction and
 Special first-year depreciation allowance, you must have sufficient taxes due on income from other sources to take the resulting first-year tax credit.
WARNING! Because you have negative cash flows in multiple years, you may have more than one internal rate of return.

Summary Annual Production (tons)                                      12,395      13,400        16,750       16,750        16,750             -              -              -
                                                                                                     Page 5                                                             ChargeOut1.03.xls




Basic Assumptions (continued on next page)
                     Purchase price (without tires)    $    180,000                                                         Engine type         Diesel
                                   Salvage estimate    $     55,800                                                         Horsepower            135 HP
             Index the salvage estimate to inflation        No                             Maintenance and repairs functions' forms           Estimated
      Gearing (% of total purchase price financed)               60%      Initial maintenance as a pct. of straight-line depreciation               10.0%
                                          Loan term          3 years     Productive hours until maintenance costs increase by 50%                  4,000
               Loan and deposit payments per year                 12            Initial repairs as a pct. of straight-line depreciation             40.0%
           General depreciation system (GDS) life            5 years           Productive hours until repairs costs increase by 50%                3,000
        Alternative depreciation system (ADS) life           6 years                                                    Utilization rate            67.0%
                                      Economic life          5 years                                            Crankcase oil capacity          10 gallons
                                 Depreciation code        SLGDS                                              Time between oil changes           120 hours
      Only used for declining balance depreciation             200%                           Other lubricants (% of engine oil cost)               50.0%
                             Section 179 deduction     $    108,000                          Diesel fuel consumption (gallons/hour)                 4.958
         Special first-year depreciation allowance                0%                                  Oil consumption (gallons/hour)                0.154
                             Loan interest rate is…        Fixed                                                 Fuel cost (per gallon)     $      2.900
                     Fixed loan interest rate (APR)            9.00%                                               Oil cost (per gallon)    $      4.380
                        Deposit interest rate (APR)            3.00%                                                 Tire cost (per set)    $      6,000
        Expected risk premium on invested capital              7.00%                                                            Tire life     3,000 hours
                                           Inflation            3.0%                                            Tire installation factor              15%
                                    Income tax rate            33.0%                  Additional periodic consumables               cost    $ 1,500.00
                                 Tax loss treatment    Flow through                   Additional periodic consumables                life       500 hours
                Ad valorem (property) tax mill rate              -                                           Annual insurance percent                3.0%
        Ad valorem (property) tax valuation basis           ACI                                        Other fixed costs        ($/year)    $      4,000
            Fixed operating costs sensitivity factor           100%                   Other variable costs            ($/scheduled hr.)     $      1.000
         Variable operating costs sensitivity factor           100%                  Expected production         (ton/productive hour)                 10




WARNING! You are getting a flow-through tax credit in year 1. See the taxes in the cash flow table. In order to take the Section 179 deduction and Special first-year
 depreciation allowance, you must have sufficient taxes due on income from other sources to take the resulting first-year tax credit.
                                                                                               Page 6                                                                                 ChargeOut1.03.xls




Basic Assumptions (continued)

                                                                 —————————————————— Year ——————————————————                                                               Equalized
Annual operating and productive time                   0           1      2     3      4     5     6     7                                                    8            annual
           Scheduled operating time (hours/year)                    1,850 2,000  2,500 2,500 2,500   -     -                                                        -         2,257
             Annual productive time (hours/year)                    1,240 1,340  1,675 1,675 1,675   -     -                                                        -         1,512




Annual hourly charge-out rates
                                         Negotiated             $     45.00   $   46.00   $    47.50    $   49.00   $   51.00   $     52.00   $   53.50   $       55.00   $   44.92
                                 Inflation-adjusted             $     45.00   $   46.35   $    47.74    $   49.17   $   50.65   $       -     $     -     $         -     $   45.00

IMPORTANT! Because your charge-out rates change annually with inflation (cell L13), you need to provide the Year-1 hourly rate (cell C103).
                                                                                              Page 7                                                                       ChargeOut1.03.xls




CASH FLOW ANALYSIS

Cash Flow Table (continued on next page)
                                                               —————————————————— Year ——————————————————
                                                    0            1    2     3      4       5    6      7                                            8
Analysis in Current Dollars                                                                                                                                 Discounted       Percent
                                                                                                                                                               total          total
GROSS REVENUE                                                  $   83,250   $ 92,700    $   119,351    $ 122,932   $ 126,620    $   -   $   -   $       -   $ 443,736           100%

OWNERSHIP COSTS (purchase & salvage)
Purchase price (including tires)               $   (186,000)                                                                                                $ (186,000)           -42%
Salvage value                                                           -           -             -            -       55,800       -       -           -       40,294              9%

FIXED OPERATING COSTS
Insurance                                                           (4,027)     (4,148)      (4,272)      (4,400)      (4,532)      -       -           -       (17,593)           -4%
Ad valorem (property) taxes                                              -           -            -            -            -       -       -           -             -             0%
Other fixed costs                                                   (4,120)     (4,244)      (4,371)      (4,502)      (4,637)      -       -           -       (17,999)           -4%
Subtotal: fixed operating costs                                $    (8,147) $   (8,391) $    (8,643) $    (8,902) $    (9,169) $    -   $   -   $       -   $   (35,592)           -8%

VARIABLE OPERATING COSTS
Maintenance                                                         (3,041)    (3,588)       (4,380)    (5,346)    (6,525)          -       -           -      (18,434)            -4%
Repairs                                                            (12,685)   (15,660)      (20,227)   (26,127)   (33,748)          -       -           -      (86,778)           -20%
Tires                                                                    -          -        (7,540)         -     (7,999)          -       -           -      (11,978)            -3%
Additional periodic consumables                                     (3,090)    (4,774)       (4,917)    (5,065)    (6,956)          -       -           -      (20,057)            -5%
Fuel                                                               (18,355)   (20,439)      (26,315)   (27,104)   (27,917)          -       -           -      (97,835)           -22%
Engine oil                                                            (864)      (962)       (1,238)    (1,276)    (1,314)          -       -           -       (4,604)            -1%
Other lubricants                                                      (432)      (481)         (619)      (638)      (657)          -       -           -       (2,302)            -1%
Other variable operating costs                                      (1,906)    (2,122)       (2,732)    (2,814)    (2,898)          -       -           -      (10,157)            -2%
Subtotal: variable operating costs                             $   (40,373) $ (48,025) $    (67,968) $ (68,369) $ (88,014) $        -   $   -   $       -   $ (252,146)           -57%

Subtotal: fixed and variable operating costs                   $   (48,519) $ (56,417) $    (76,611) $ (77,272) $ (97,184) $        -   $   -   $       -   $ (287,738)           -65%

Cash flow before tax & financing               $   (186,000) $     34,731   $ 36,283    $    42,740    $ 45,660    $ 85,236     $   -   $   -   $       -   $   10,292              2%

FINANCING
Loan principal                                 $   111,600                                                                                                  $ 111,600              25%
Total loan interest payments                                   $    (8,668) $ (5,486) $      (2,005) $         -   $        -   $   -   $   -   $       -     (14,587)             -3%
Total loan principal repayment                                     (33,919)   (37,101)      (40,581)           -            -       -       -           -     (97,731)            -22%

Cash fow before tax                            $    (74,400) $      (7,856) $   (6,303) $      154     $ 45,660    $ 85,236     $   -   $   -   $       -   $    9,574              2%
                                                                                                                                  Page 8                                                                               ChargeOut1.03.xls




Cash Flow Table (continued)                                                          —————————————————— Year ——————————————————
                                                                           0           1          2        3        4        5       6     7                                                     8
Cash fow before tax                                                 $      (74,400) $  (7,856) $ (6,303) $   154 $ 45,660 $ 85,236 $   - $   -                                               $       -   $    9,574             2%

TAX ADJUSTMENTS
Section 179 deduction                                                                   $ (108,000)                                                                                                      $ (101,192)          -23%
Special first-year depreciation allowance                                                        -                                                                                                                -             0%
Depreciation expense                                                                       (15,600) $ (15,600) $                (15,600) $ (15,600) $ (15,600) $                 -   $   -   $       -      (64,432)          -15%
Taxable gain (loss) on salvage †                                                                 -          -                         -          -    55,800                     -       -           -       40,294             9%
Subtotal: tax adjustments                                                               $ (123,600) $ (15,600) $                (15,600) $ (15,600) $ 40,200                 $   -   $   -   $       -   $ (125,329)          -28%

Taxable cash flow                                                                       $    (97,537) $ 15,198            $      25,134      $ 30,060        $ 69,636        $   -   $   -   $       -   $   16,081             4%
Taxes ††                                                                                      32,187           (5,015)           (8,294)          (9,920)         (22,980)       -       -           -       (5,307)           -1%

After tax cash flow                             $     (74,400) $ 24,332 $ (11,318) $           (8,141) $ 35,740 $ 62,256 $                   - $            - $                                      -   $    4,267             1%
WARNING! You are getting a tax credit in year 1. In order to take the Section 179 deduction and Special first-year tax deductions, you must have other taxable income.
†   If the salvage value is less than the purchase price less the accumulated depreciation, the firm takes a book loss on the investment and gets a tax credit.
      If the salvage value is greater than the skidder cost less its accumulated depreciation, the firm pays income tax tax on recovery of excess depreciation.
      Technically, the asset should be sold at the beginning of the next year following the end of its economic life, to allow the last depreciation expense to be taken..
†† If the firm suffers a tax loss, the model assumes that there is other income in the current period against which the loss may be deducted.


Tax calculation table with tax loss carry-forwards (used only if tax losses "Carry forward")
Taxable cash flow                                                    $ (97,537) $ 15,198 $                                       25,134 $ 30,060 $ 69,636 $                      -   $   -   $       -
Tax credit (taxes due) on taxable cash flow                               32,187      (5,015)                                    (8,294)  (9,920)  (22,980)                      -       -           -
Plus: beginning carryover tax credits                                          -      32,187                                     27,172   18,878     8,958                       -       -           -
Ending carryover tax credits                                         $ 32,187 $ 27,172 $                                         18,878 $ 8,958 $        - $                     -   $   -   $       -
Taxes payable                                                        $         - $         - $                                        - $      - $ (14,022) $                    -   $   -   $       -

Tax calculation table with no treatment of losses (used only if tax losses are lost, therefore Tax treatment = "None")
Taxable cash flow                                                     $          - $ (5,015) $         (8,294) $ (9,920) $ (22,980) $                                            -   $   -   $       -

                                                                                         —————————————————— Year ——————————————————
                                                                           0               1    2     3      4       5    6      7                                                               8
Analysis in Real Dollars

Before tax & finance cash flow (nominal)                            $    (186,000) $          34,731      $ 36,283        $      42,740      $ 45,660        $ 85,236        $   -   $   -   $       -
Before tax & finance cash flow (real)                               $    (186,000) $          33,719      $ 34,201        $      39,113      $ 40,568        $ 73,525        $   -   $   -   $       -

Before tax cash flow (nominal)                                      $      (74,400) $          (7,856) $       (6,303) $             154     $ 45,660        $ 85,236        $   -   $   -   $       -
Before tax cash flow (real)                                         $      (74,400) $          (7,627) $       (5,941) $             141     $ 40,568        $ 73,525        $   -   $   -   $       -

After tax cash flow (nominal)                                       $      (74,400) $         24,332      $ (11,318) $           (8,141) $ 35,740            $ 62,256        $   -   $   -   $       -
After tax cash flow (real)                                          $      (74,400) $         23,623      $ (10,668) $           (7,450) $ 31,755            $ 53,703        $   -   $   -   $       -
                                                                                                  Page 9                                                         ChargeOut1.03.xls




CALCULATIONS AND EXPENSE TEMPLATES

                                                                  —————————————————— Year ——————————————————
                                                        0           1    2     3      4       5    6      7                                              8
Gross Revenue Calculations
Negotiated annual hourly charge-out rates                         $   83,250     $ 92,000   $   118,750    $ 122,500   $ 127,500   $    -    $   -   $       -
Inflation-adjusted annual hourly charge-out rates                 $   83,250     $ 92,700   $   119,351    $ 122,932   $ 126,620   $    -    $   -   $       -


                                                                  —————————————————— Year ——————————————————
                                                        0           1    2     3      4       5    6      7                                              8
Depreciation Calculations
Beginning book value                                              $ 186,000      $ 62,400   $    46,800    $ 31,200    $ 15,600    $    -    $   -   $       -
Less:
 Section 179 deduction                                            $ (108,000)
 Special first-year depreciation allowance                                 -
Depreciable value                                   $   186,000   $ 78,000 $ 62,400 $            46,800 $ 31,200 $ 15,600 $             -    $   -   $       -
Depreciation expense                                                 (15,600) (15,600)          (15,600)  (15,600) (15,600)             -        -           -
Salvage write-off                                                          -        -                 -         -        -              -        -           -
Ending book value                                   $   186,000   $ 62,400 $ 46,800 $            31,200 $ 15,600 $       - $            -    $   -   $       -

Accumulated depreciation                                          $   (15,600) $ (31,200) $     (46,800) $ (62,400) $ (78,000) $        -    $   -   $       -

Depreciation Expense Templates
Declining balance [DB]                                            $   (31,200)   $ (24,960) $   (18,720)   $ (15,600) $ (15,600) $      -    $   -   $       -
Straight line (GDS life: Accelerated) [SLGDS]                     $   (15,600)   $ (15,600) $   (15,600)   $ (15,600) $ (15,600) $      -    $   -   $       -
Straight line (ADS life) [SLADS]                                  $   (13,000)   $ (12,480) $   (11,700)   $ (10,400) $ (7,800) $       -    $   -   $       -
Straight line (economic life) [SLEL]                              $    (4,573)   $ (4,710) $     (4,852)   $ (4,997) $ (5,147) $        -    $   -   $       -
Custom                                                            $         -    $       - $          -    $       - $        - $       -    $   -   $       -

WARNING! You could probably improve your rate of return or reduce your break-even charge-out rate by using declining balance depreciation,
 if you have sufficient cash flow to take the higher write offs in the earlier years.
                                                                                                                                            Page 10                                                                                        ChargeOut1.03.xls




Maintenance Expense Template                                             Fudge Factor †                                                                                                                                             PV       Difference
Estimated                                                                        1.00 $                (2,953) $        (3,382) $           (4,008) $        (4,750) $ (5,629) $                    -   $       -   $       -   $   (16,758) $        -
Custom                                                                           0.45 $                  (923) $        (1,651) $           (3,057) $        (5,660) $ (10,479) $                   -   $       -   $       -   $   (16,758) $        -
  †
      The Fudge Factor may be used to ensure that the NPV’s of the distributions are equal so that costing differences between models are not due to inequalities in maintenance assumptions.
         To make the NPV’s equal, set one Fudge Factor equal to 1.00 and use “Goal Seek” to find the second Fudge Factor that makes the difference between the NPV’s = $0.




Repairs Expense Template                                                 Fudge Factor †                                                                                                                                             PV       Difference
Estimated                                                                         1.00 $             (12,316) $ (14,761) $                (18,511) $ (23,214) $ (29,111) $                          -   $       -   $       -   $   (78,637) $        -
Custom                                                                      0.0010242 $               (8,766) $ (11,646) $                (20,583) $ (25,812) $ (32,370) $                          -   $       -   $       -   $   (78,637) $        -
  †
      The Fudge Factor may be used to ensure that the NPV’s of the distributions are equal so that costing differences between models are not due to inequalities in repairs assumptions.
         To make the NPV’s equal, set one Fudge Factor equal to 1.00 and use “Goal Seek” to find the second Fudge Factor that makes the difference between the NPV’s = $0.




Tire Replacement Calculations
Beginning tire life (hours)                                                         3,000               3,000            1,761                 421            1,746                71           1,396       1,396       1,396
Replacement tire hours                                                                  -                   -                -               3,000                -             3,000               -           -           -
Annual productive time                                                                                  1,240            1,340               1,675            1,675             1,675               -           -           -
Remaining tire life (hours)                                                         3,000               1,761              421               1,746               71             1,396           1,396       1,396       1,396
Tire replacements (number/year)                                                                             -                -                   1                -                 1               -           -           -
                                                                            Page 11                                                                      ChargeOut1.03.xls




CALCULATIONS AND EXPENSE TEMPLATES (continued)

                                                     —————————————————— Year ——————————————————
                                            0             1      2     3      4     5     6     7                                              8
Additional periodic consumables       Replacement calculations
Beginning life (hours)                           -           500   261    421   246    71   396   396                                              396
Replacement hours                             500          1,000 1,500  1,500 1,500 2,000     -     -                                                -
Annual productive time (hours)                   -         1,240 1,340  1,675 1,675 1,675     -     -                                                -
Remaining life (hours)                        500            261   421    246    71   396   396   396                                              396
Total replacements (number/year)                1              2     3      3     3     4     -     -                                                -


Ad valorem (property) tax valuation
Straight-line book value (SLB)                 $ 180,000   $ 159,300   $   138,600    $ 117,900   $ 97,200    $    76,500   $    55,800   $    35,100
Average capital invested (ACI)                 $ 130,320   $ 130,320   $   130,320    $ 130,320   $ 130,320   $   130,320   $   130,320   $   130,320
Custom                                         $ 169,650   $ 148,950   $   128,250    $ 107,550   $ 86,850    $    66,150   $    45,450   $    17,550
                                                                                        Page 12                                                                                         ChargeOut1.03.xls




CHARGEOUT! Sensitivity Analysis                                                             Use Data, Table, Column Input Cell = Whatever cell is variable (eg: Inflation Rate, Gearing, ARR, etc.)

            Purchase Price                  Nominal IRR      Real IRR     Break-even                                    Break-even
                                                                                                                                Risk
                                              After-tax      After-tax    Chargeout                                      Chargeout
                                                                                                                              Premium
                                                      8.2%         5.1%      $44.35                                          $44.35
              $174,000                              10.5%          7.2%   $ 43.44                              -3%     $      41.50
              $176,000                              12.0%          8.8%   $ 42.83                              -2%     $      41.78
              $178,000                              12.9%          9.6%   $ 42.53                              -1%     $      42.07
              $180,000                              12.9%          9.6%   $ 42.53                               0%     $      42.35
              $182,000                              12.0%          8.8%   $ 42.83                               1%     $      42.63
              $184,000                              10.5%          7.2%   $ 43.44                               2%     $      42.92
              $186,000                                8.2%         5.1%   $ 44.35                               3%     $      43.20
              $188,000                                5.5%         2.4%   $ 45.57                               4%     $      43.49
              $190,000                                2.4%        -0.6%   $ 47.09                               5%     $      43.78
              $192,000                               -1.0%        -3.8%   $ 48.91                               6%     $      44.07
              $194,000                               -4.4%        -7.2%   $ 51.04                               7%     $      44.35
              $196,000                               -7.8%       -10.5%   $ 53.48                               8%     $      44.64
              $198,000                             -11.1%        -13.7%   $ 56.21                               9%     $      44.93
                                      Purchase price increment change =      $2,000                            10%     $      45.23
                                                                                       Risk premium increment change =           1%

           Charge-out rate                    Nominal IRR    Real IRR
                                               After-tax     After-tax
                                                      8.2%         5.1%
$                                    39.35           -5.2%        -7.9%
                                                                                                                                     The effect of charge-out rates on rate of return
$                                    40.35           -2.7%        -5.6%
$                                    41.35           -0.3%        -3.2%                                                      20.0%




                                                                                                  After-tax real internal
$                                    42.35            2.1%        -0.9%
                                                                                                                             15.0%
$                                    43.35            4.4%         1.4%




                                                                                                      rate of return
                                                                                                                             10.0%
$                                    44.35            6.7%         3.6%
$                                    45.35            9.0%         5.9%                                                       5.0%
$                                    46.35           11.3%         8.1%                                                       0.0%
$                                    47.35           13.6%       10.3%                                                       -5.0%
$                                    48.35           15.8%       12.4%                                                      -10.0%                         Hourly charge-out rate
$                                    49.35           18.0%       14.6%
                             Charge-out increment change = $       1.00
                                                              Page 13   ChargeOut1.03.xls




  Gearing      Nominal IRR        Real IRR       Break-even
                After-tax         After-tax      Chargeout
                       8.2%             5.1%        $44.35
    0%                 6.8%             3.7%     $ 44.97
   10%                 6.9%             3.8%     $ 44.87
   20%                 7.1%             4.0%     $ 44.77
   30%                 7.3%             4.2%     $ 44.66
   40%                 7.5%             4.4%     $ 44.56
   50%                 7.8%             4.7%     $ 44.46
   60%                 8.2%             5.1%     $ 44.35
   70%                 8.7%             5.5%     $ 44.25
   80%                 9.4%             6.2%     $ 44.15
   90%               10.3%              7.1%     $ 44.04


Depreciation   Nominal IRR        Real IRR       Break-even
   code         After-tax         After-tax      Chargeout
                       8.2%             5.1%        $44.35
    DB                 8.7%             5.5%     $ 44.20
  SLGDS                8.2%             5.1%     $ 44.35
  SLADS                8.0%             4.9%     $ 44.42
   SLEL                7.5%             4.4%     $ 44.64
  Custom               7.2%             4.1%     $ 44.76

 Inflation      Nominal IRR        Real IRR      Break-even
                  After-tax         After-tax    Chargeout
                          8.2%            5.1%      $44.35
   -1.0%                  8.1%            9.2%   $ 44.38
   0.0%                   8.1%            8.1%   $ 44.36
   1.0%                   8.2%            7.1%   $ 44.35
   2.0%                   8.2%            6.1%   $ 44.35
   3.0%                   8.2%            5.1%   $ 44.35
   4.0%                   8.2%            4.1%   $ 44.37
   5.0%                   8.2%            3.0%   $ 44.38
   6.0%                   8.2%            2.0%   $ 44.41
   7.0%                   8.1%            1.0%   $ 44.44
   8.0%                   8.0%            0.0%   $ 44.48
   9.0%                   7.9%           -1.0%   $ 44.52
   10.0%                  7.8%           -2.0%   $ 44.57
                    Inflation starting point =        -1.0%
               Inflation increment change =            1.0%
                                                                                           Page 14   ChargeOut1.03.xls




 Fixed Operating Costs Sensitivity Factor       Nominal IRR      Real IRR     Break-even
                                                  After-tax      After-tax    Chargeout
                                                          8.2%         5.1%      $44.35
                  70%                                   10.7%          7.5%   $ 43.27
                  75%                                   10.3%          7.1%   $ 43.45
                  80%                                     9.9%         6.7%   $ 43.63
                  85%                                     9.5%         6.3%   $ 43.81
                  90%                                     9.0%         5.9%   $ 43.99
                  95%                                     8.6%         5.5%   $ 44.17
                  100%                                    8.2%         5.1%   $ 44.35
                  105%                                    7.8%         4.7%   $ 44.53
                  110%                                    7.4%         4.3%   $ 44.72
                  115%                                    7.0%         3.9%   $ 44.90
                  120%                                    6.6%         3.4%   $ 45.08
                  125%                                    6.1%         3.0%   $ 45.26
                  130%                                    5.7%         2.6%   $ 45.44
                                   Fixed operating costs increment change =          5%


Variable Operating Costs Sensitivity Factor     Nominal IRR      Real IRR     Break-even
                                                  After-tax      After-tax    Chargeout
                                                          8.2%         5.1%      $44.35
                  70%                                   24.9%         21.3%   $ 36.68
                  75%                                   22.2%         18.7%   $ 37.96
                  80%                                   19.5%         16.0%   $ 39.24
                  85%                                   16.8%         13.4%   $ 40.52
                  90%                                   14.0%         10.7%   $ 41.80
                  95%                                   11.1%          7.9%   $ 43.08
                  100%                                    8.2%         5.1%   $ 44.35
                  105%                                    5.3%         2.2%   $ 45.63
                  110%                                    2.2%        -0.8%   $ 46.91
                  115%                                   -0.9%        -3.8%   $ 48.19
                  120%                                   -4.1%        -6.9%   $ 49.47
                  125%                                   -7.3%       -10.0%   $ 50.75
                  130%                                 -10.7%        -13.3%   $ 52.03
                                Variable operating costs increment change =          5%
                 Page 15   ChargeOut1.03.xls




ay be changed.


rge-out Rates:
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                                                                                                                               Page 23   ChargeOut1.03.xls




aring, ARR, etc.)


                                                  The effect of purchase price on the real after-tax IRR
                                                             and break-even charge-out rates

                                         15.0%                                                     $60.00
                                         10.0%                                                     $50.00
                    Real after-tax IRR




                                          5.0%                                                     $40.00
                                          0.0%                                                     $30.00
                                          -5.0%                                                    $20.00
                                         -10.0%                                                    $10.00
                                         -15.0%                                                    $- After-tax real IRR
                                                                Purchase price                         Break-even charge-out
                                                   CHARGEOUT! Discounted ownership costs, operating costs,
N                                                    and profit (loss) as a percent of discounted gross revenue

                                          100.0%

                                          90.0%
    Percent of discounted gross revenue




                                                                                                    Additional profit (loss)
                                          80.0%
                                                                                                    Other variable op. costs and taxes
                                          70.0%                                                     Repairs & maintenance

                                          60.0%                                                     Fixed operating costs & loan interest
                                                                                                    Net ownership costs
                                          50.0%

                                          40.0%
                                                                                        Notes:
                                          30.0%                                         Profit represents a return over and above the owenr's cost of capital.
                                                                                        Loss represents a return less than the owner's cost of capital
                                                                                        Variable costs are shown with diagonal bars.
                                          20.0%                                         Fixed costs are shown with horizontal and vertical bars.


                                          10.0%

                                           0.0%
                                                                   1
                                                             Cost category
                             CHARGEOUT! Summary annual cash flows
                $100,000


                  $50,000


                       $-
Cash flow ($)




                               0    1    2   3          4           5         6   7   8

                 $(50,000)


                $(100,000)                   Cash flow before tax and financing
                                             Cash flow before tax
                                             Cash flow after tax
                $(150,000)


                $(200,000)
                                                     Year
CHARGEOUT! Optional Fuel & Oil Consumption Calculations
   Assumptions in BLUE may be changed on this sheet.
   To change assumptions in BLACK, go to the Chargeout worksheet.

These fuel and oil calculations may be used in the ChargeOut worksheet. If they are,
  then if the horsepower is changed in the summary, the hourly fuel and oil consumption
  will automatically change. Alternatively, fuel and oil consumption may be entered
  directly on the ChargeOut worksheet.

Summary fuel and oil consumption for a diesel engine
Diesel fuel consumption                                   4.958 gallons/hour
Oil consumption                                           0.154 gallons/hour

Calculation source: Miyata, Edwin S. 1980. Determining fixed and operating costs
   of logging equipment. USDA Forest Service, North Central Forest Experiment Station.
   General Technical Report NC-55. Pp.9-10.

Fuel consumption assumptions                            Used in   From
                                                       Summary Miyata (1980)
Pounds of diesel fuel consumed per hp hour                  0.40        0.40
Pounds of gasoline fuel consumed per hp hour                0.46        0.46

Avg. net horsepower used to net horsepower available        0.65           0.65
Net engine horsepower at maximum engine speed                135            115
Weight (pounds) of diesel fuel per gallon                   7.08           7.08
Weight (pounds) of gasoline fuel per gallon                 6.01           6.01

Source: McCraw, W.E. 1963, Truck and road standards and hauling costs.
  Canada Dep. For., For. Prod. Res. Branch. Contribution P-32, 6p.
  In: Miyata, Edwin S. 1980. Determining fixed and operating costs of logging equipment.
  USDA Forest Service, North Central Forest Experiment Station.
  General Technical Report NC-55. pp.9-10.

Oil consumption assumptions                             Used in   From
                                                       Summary Miyata (1980)
Net engine horsepower                                       135          115

Avg. net horsepower used to Net horsepower available        0.65           0.65
Pounds of engine oil consumed between oil changes
 per horsepower hour                                      0.006           0.006
Weight (pounds) of engine oil per gallon                    7.4             7.4
Crankcase capacity (gallons)                                 10              10
Hours between oil changes                                   120             120

Source: Peurifoy, R.L. 1975. Estimating construction costs. McGraw-Hill, Inc. 456 p.
  In: Miyata, Edwin S. 1980. Determining fixed and operating costs of logging equipment.
  USDA Forest Service, North Central Forest Experiment Station.
  General Technical Report NC-55. pp.9-10.

				
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