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Title: ChargeOut! Discounted Cash Flow Compared with Traditional Machine-Rate Analysis

Source: USDA Forest Service, Forest Products Laboratory, FPL-GTR-178, January 2009

Author(s)Bilek, E.M. (Ted)

Publication Year: 2009  View PDF »

Category: General Technical Reports
Associated Research Project(s):   FPL-4851-6A

Abstract: ChargeOut!, a discounted cash-flow methodology in spreadsheet format for analyzing machine costs, is compared with traditional machine-rate methodologies. Four machine-rate models are compared and a common data set representative of logging skidders' costs is used to illustrate the differences between ChargeOut! and the machine-rate methods.The study found that the machine-rate methodologies were not standardized and the methodologies had differences in accounting for ownership, other fixed costs, and variable operating costs. The result was that two of the machine-rate models calculated hourly rates that were higher than needed to provide the specified return on capital, and two of the machine-rate models calculated hourly rates that were insufficient to provide the specified return. In contrast, ChargeOut!'s break-even rate returned exactly the specified return.Differences between the results calculated by the machine-rate methods occur because of different implicit assumptions used within the models' formus, largely because the machine-rate models are unable to properly incorporate the time value of money. Whereas ChargeOut! can be sufficiently constrained to approximately replicate a machine-rate calculation, doing so sacrifices much of ChargeOut!'s power and flexibility. Machine-rate models cannot be configured to replicate ChargeOut!'s calculations. Machine-rate models cannot be configured to calculate cash flows, allow for uneven costs or machine hours, incorporate loans that have a different life than the expected machine life, or perform an after-tax analysis. ChargeOut! can do all of these.

Keywords: Logging; machinery; costs; data processing; industrial equipment; discounted cash flow; break-even analysis; charge-out rate; capital equipment costing; machine rate; depreciation; inflation; discounted cash flow analysis

File size: 991 kb(s)

This publication is also viewable on Treesearch:  view
RITS Product ID: 31265

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