3042 ✦ Chapter 51: Computations Figure 51.7 CD Values after Deflation You can save the deflated cashflow to a SAS data set for use in an internal rate of return analysis or breakeven analysis. Click Return to return to the Investment Analysis dialog box. Dialog Box Guide After Tax Cashflow Calculation Having selected a generic cashflow from the Investment Analysis dialog box, to perform an after tax calculation, select Compute ! After Tax from the Investment Analysis dialog box’s menu bar. This opens the After Tax Cashflow Calculation dialog box displayed in Figure 51.8. Currency Conversion ✦ 3043 Figure 51.8 After Tax Cashflow Calculation Dialog Box The following items are displayed: Name holds the name of the investment for which you are computing the after-tax cashflow. Federal Tax holds the federal tax rate (a percentage between 0% and 100%). Local Tax holds the local tax rate (a percentage between 0% and 100%). Combined Tax holds the effective tax rate from federal and local income taxes. Create After Tax Cashflow becomes available when Combined Tax is not empty. Clicking Create After Tax Cashflow then fills the After Tax Cashflow area. After Tax Cashflow fills when you click Create After Tax Cashflow . It holds a list of date-amount pairs where the amount is the amount retained after taxes for that date. Print becomes available when you fill the after-tax cashflow. Clicking it sends the contents of the after tax cashflow to the SAS session print device. Save Data As becomes available when you fill the after tax cashflow. Clicking it opens the Save Output Dataset dialog box where you can save the resulting cashflow (or portions thereof) as a SAS Dataset. Return returns you to the Investment Analysis dialog box. Currency Conversion Having selected a generic cashflow from the Investment Analysis dialog box, to perform a currency conversion, select Compute ! Currency Conversion from the Investment Analysis dialog box’s menu bar. This opens the Currency Conversion dialog box displayed in Figure 51.9. 3044 ✦ Chapter 51: Computations Figure 51.9 Currency Conversion Dialog Box The following items are displayed: Name holds the name of the investment to which you are applying the currency conversion. From Currency holds the name of the currency the cashflow currently represents. To Currency holds the name of the currency to which you wish to convert. Exchange Rate holds the rate of exchange between the From Currency and the To Currency. Apply Currency Conversion becomes available when you fill Exchange Rate . Clicking Apply Currency Conversion fills the Currency Conversion area. Currency Conversion fills when you click Apply Currency Conversion . The schedule contains a row for each cashflow item with the following information: Date is a SAS date within the cashflow. The From Currency value is the amount in the original currency at that date. The To Currency value is the amount in the new currency at that date. Print becomes available when you fill the Currency Conversion area. Clicking it sends the contents of the conversion table to the SAS session print device. Save Data As becomes available when you fill the Currency Conversion area. Clicking it opens the Save Output Dataset dialog box where you can save the conversion table (or portions thereof) as a SAS Dataset. Return returns you to the Investment Analysis dialog box. Constant Dollar Calculation ✦ 3045 Constant Dollar Calculation Having selected a generic cashflow from the Investment Analysis dialog box, to perform a constant dollar calculation, select Compute ! Constant Dollars from the Investment Analysis dialog box’s menu bar. This opens the Constant Dollar Calculation dialog box displayed in Figure 51.10. Figure 51.10 Constant Dollar Calculation Dialog Box The following items are displayed: Name holds the name of the investment for which you are computing the constant dollars value. Constant Inflation Rate holds the constant inflation rate (a percentage between 0% and 120%). This value is used if the Variable Inflation List area is empty. Variable Inflation List holds date-rate pairs that describe how inflation varies over time. Each date is a SAS date, and the rate is a percentage between 0% and 120%. Each date refers to when that inflation rate begins. Right-clicking within the Variable Inflation area reveals many helpful tools for managing date-rate pairs. If you assume a fixed inflation rate, just insert that rate in Constant Rate . Dates holds the SAS date(s) at which you wish to compute the constant dollar equivalent. Right- clicking within the Dates area reveals many helpful tools for managing date lists. Create Constant Dollar Equivalent becomes available when you enter inflation rate information. Clicking it fills the constant dollar equivalent summary with the computed constant dollar values. Constant Dollar Equivalent Summary fills with a summary when you click Create Constant Dollar Equivalent . The first column lists the dates of the generic cashflow. The second column contains the constant dollar equivalent of the original generic cashflow item of that date. 3046 ✦ Chapter 51: Computations Print becomes available when you fill the constant dollar equivalent summary. Clicking it sends the contents of the summary to the SAS session print device. Save Data As becomes available when you fill the constant dollar equivalent summary. Clicking it opens the Save Output Dataset dialog box where you can save the summary (or portions thereof) as a SAS Dataset. Return returns you to the Investment Analysis dialog box. Chapter 52 Analyses Contents The Analyze Menu . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3047 Tasks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3048 Performing Time Value Analysis . . . . . . . . . . . . . . . . . . . . . . . 3048 Computing an Internal Rate of Return . . . . . . . . . . . . . . . . . . . . . 3050 Performing a Benefit-Cost Ratio Analysis . . . . . . . . . . . . . . . . . . . . 3051 Computing a Uniform Periodic Equivalent . . . . . . . . . . . . . . . . . . 3052 Performing a Breakeven Analysis . . . . . . . . . . . . . . . . . . . . . . . 3053 Dialog Box Guide . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3055 Time Value Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3055 Uniform Periodic Equivalent . . . . . . . . . . . . . . . . . . . . . . . . . . . 3057 Internal Rate of Return . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3058 Benefit-Cost Ratio Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . 3058 Breakeven Analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3060 Breakeven Graph . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3061 The Analyze Menu Figure 52.1 shows the Analyze menu. Figure 52.1 Analyze Menu The Analyze menu offers the following options for use on applicable investments. 3048 ✦ Chapter 52: Analyses Time Value opens the Time Value Analysis dialog box. Time value analysis involves moving money through time across a defined minimum attractive rate of return (MARR) so that you can compare value at a consistent date. The MARR can be constant or variable over time. Periodic Equivalent opens the Uniform Periodic Equivalent dialog box. Uniform periodic equiva- lent analysis determines the payment needed to convert a cashflow to uniform amounts over time, given a periodicity, a number of periods, and a MARR. This option helps when making comparisons where one alternative is uniform (such as renting) and another is not (such as buying). Internal Rate of Return opens the Internal Rate of Return dialog box. The internal rate of return of a cashflow is the interest rate that makes the time value equal to 0. This calculation assumes uniform periodicity of the cashflow. It is particularly applicable where the choice of MARR would be difficult. Benefit-Cost Ratio opens the Benefit-Cost Ratio Analysis dialog box. The benefit-cost ratio divides the time value of the benefits by the time value of the costs. For example, governments often use this analysis when deciding whether to commit to a public works project. Breakeven Analysis opens the Breakeven Analysis dialog box. Breakeven analysis computes time values at various MARRs to compare, which can be advantageous when it is difficult to determine a MARR. This analysis can help you determine how the cashflow’s profitability varies with your choice of MARR. A graph displaying the relationships between time value and MARR is also available. Tasks 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 data set 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: 1. Create a cashflow with the single amount –264,000. Date the amount 01JAN1998 to be consistent with the SAS data set you load. 2. Load SASHELP.ROCKPIT into a second cashflow, as displayed in Figure 52.2. Performing Time Value Analysis ✦ 3049 Figure 52.2 The contents of SASHELP.ROCKPIT To compute the time values of these investments, follow these steps: 1. Select both cashflows. 2. Select Analyze ! Time Value. This opens the Time Value Analysis dialog box. 3. Enter the date 01JAN1998 into the Dates area. 4. Enter 13 for the Constant MARR. 5. Click Create Time Value Summary. 3050 ✦ Chapter 52: Analyses Figure 52.3 Performing the Time Value Analysis As shown in Figure 52.3, 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. Computing an Internal Rate of Return You are choosing between five investments. A portfolio containing these investments is available at SASHELP.INVSAMP.NVST. Which investments are acceptable if you expect a MARR of 9%? Open the portfolio SASHELP.INVSAMP.NVST and compare the investments. Note that Internal Rate of Return computations assume regular periodicity of the cashflow. To compute the internal rates of return, follow these steps: 1. Select all five investments. 2. Select Analyze ! Internal Rate of Return. Performing a Benefit-Cost Ratio Analysis ✦ 3051 Figure 52.4 Computing an Internal Rate of Return The results displayed in Figure 52.4 indicate that the internal rates of return for investments 2, 4, and 5 are greater than 9%. Hence, each of these is acceptable. Performing a Benefit-Cost Ratio Analysis Suppose a municipality has excess funds to invest. It is choosing between the same investments described in the previous example. Government agencies often compute benefit-cost ratios to decide which investment to pursue. Which is best in this case? Open the portfolio SASHELP.INVSAMP.NVST and compare the investments. To compute the benefit-cost ratios, follow these steps: 1. Select all five investments. 2. Select Analyze ! Benefit-Cost Ratio. 3. Enter 01JAN1996 for the Date. 4. Enter 9 for Constant MARR. 5. Click Create Benefit-Cost Ratio Summary to fill the Benefit-Cost Ratio Summary area. The results displayed in Figure 52.5 indicate that investments 2, 4, and 5 have ratios greater than 1. Therefore, each is profitable with a MARR of 9%. . amount 01JAN 199 8 to be consistent with the SAS data set you load. 2. Load SASHELP.ROCKPIT into a second cashflow, as displayed in Figure 52.2. Performing Time Value Analysis ✦ 30 49 Figure 52.2. Figure 52.3, option 1 has a time value of –$264,000.00 naturally on 01JAN 199 8. However, option 2 has a time value of –$263,408 .94 , which is slightly less expensive. Computing an Internal Rate of Return You. Select all five investments. 2. Select Analyze ! Benefit-Cost Ratio. 3. Enter 01JAN 199 6 for the Date. 4. Enter 9 for Constant MARR. 5. Click Create Benefit-Cost Ratio Summary to fill the Benefit-Cost