nist -智能投資工具指南 A Guide to the Smart Investment Tools 2024

NISTAdvancedManufacturingSeriesNISTAMS100-62

AGuidetotheSmartInvestmentTools

DouglasThomasEconomist

JoshuaKneifelEconomist

PuravParekhSoftwareDeveloper

Thispublicationisavailablefreeofchargefrom:

/10.6028/NIST.AMS.100-62

SmartInvestmentToolversion1.0.2

SmartInvestmentToolExpress(SITExpress)version1.0

NISTAdvancedManufacturingSeriesNISTAMS100-62

AGuidetotheSmartInvestmentTools

DouglasThomas,Economist

JoshuaKneifel,EconomistPuravParekh,SoftwareDeveloper

EngineeringLaboratoryOfficeEngineeringLaboratory

Thispublicationisavailablefreeofchargefrom:

/10.6028/NIST.AMS.100-62

October2024

U.S.DepartmentofCommerce

GinaM.Raimondo,Secretary

NationalInstituteofStandardsandTechnology

LaurieE.Locascio,NISTDirectorandUnderSecretaryofCommerceforStandardsandTechnology

NISTAMS100-62October2024

Certainequipment,instruments,software,ormaterials,commercialornon-commercial,areidentifiedinthis

paperinordertospecifytheexperimentalprocedureadequately.Suchidentificationdoesnotimply

recommendationorendorsementofanyproductorservicebyNIST,nordoesitimplythatthematerialsorequipmentidentifiedarenecessarilythebestavailableforthepurpose.

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Copyright,Use,andLicensingStatements

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PublicationHistory

ApprovedbytheNISTEditorialReviewBoardon2024-09-13

HowtoCitethisNISTTechnicalSeriesPublication

ThomasD,KneifelJ,ParekhP(2024)AGuidetotheSmartInvestmentTools.(NationalInstituteofStandardsandTechnology,Gaithersburg,MD),AdvancedManufacturingSeries(AMS)NISTAMS100-62.

/10.6028/NIST.AMS.100-62

AuthorORCIDiDs

DouglasThomas:0000-0002-8600-4795

JoshuaKneifel:0000-0002-3114-5531

PuravParekh:0009-0009-3250-5306

NISTAMS100-62October2024

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Abstract

ThisreportservesasaguidetotheSmartInvestmentToolandSmartInvestmentToolExpress(SITExpress).Thesetoolsaidauserinconductinganinvestmentanalysiswithafocusonthoseinthemanufacturingindustry;however,themethodscanbeusedforanyinvestment.The

SmartInvestmentToolisanExceltoolthatallowsuserstospecifydetailedcashflowsand

estimatesnetpresentvalue,internalrateofreturn,paybackperiod,andexaminessensitivityusingMonteCarloanalysis.SITExpressisanexpressversionoftheSmartInvestmentTool

whereitestimatessimilarmetrics(netpresentvalue,internalrateofreturn,paybackperiod,andthebenefitcostratio)fromuserdata.Theexpressversion,however,isanonlinetool

wheretheuserentersaggregatedtotalannualcashinflowsandoutflows;thatis,theuseronlyenterstwovaluesforeachyear:cashinflowandcashoutflow.Theexpressversionalsodoesnothavetheabilitytoconductsensitivityanalysis.

Keywords

Investment;manufacturing;netpresentvalue;presentvalue;internalrateofreturn;payback;investmentanalysis

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TableofContents

1.IntroductionandMethods1

1.1.1.PresentValue 2

1.1.2.NetPresentValue 2

1.1.3.InternalRateofReturn 3

1.1.4.PaybackandDiscountedPaybackPeriods 3

1.1.5.BenefitCostRatio(BCR) 4

2.SmartInvestmentTool5

3.SITExpress 13

4.Summary 16

References 17

ListofTables

Table2.1:MonteCarloFunctions 9

ListofFigures

Figure2.1:IntroTaboftheSmartInvestmentTool 5

Figure2.2:"Start"Tab 6

Figure2.3:"Parameters"Tab 7

Figure2.4:"Calculate"Tab 7

Figure2.5:TabsfortheBaseCaseandAlternatives 8

Figure2.6:MonteCarloAnalysisColumnforFutureCosts/Revenue 10

Figure2.7:"Calculate"Tab 11

Figure2.8:"Results"Tab 12

Figure3.1:SITExpress,StepOne 13

Figure3.2:SITExpress,StepTwo 14

Figure3.3:SITExpress,StepThree 15

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Acknowledgments

TheauthorswouldliketothankCheyneyO’Fallon,DavidButry,ChristinaGore,andKennethSnyderfortheirthoughtfulreviewsandinsights.

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1.IntroductionandMethods

ThisdocumentguidesauserinaninvestmentanalysisusingtheSmartInvestmentTool(Thomas2024).anditscompanionexpressversiontheSmartInvestmentToolExpress

(SITExpress)(Thomasetal.2024).Thesetoolsaidauserinconductinganinvestmentanalysis

withafocusonthoseinthemanufacturingindustry;however,themethodscanbeusedforanyinvestment.Forinstance,thetoolscanbeusedtoanswerquestionssuchas:

?Ihave5possibleinvestments,butdonothaveenoughfundsforallofthem.WhichonesdoIchoose?

?Thereare3differentmachinerydesignoptions.Whichoneisthemostcosteffective?

?IsitmorecosteffectivetoinvestinanewHVACsystemorcontinuewiththeexistingone?

TheSmartInvestmentToolisanExceltoolthatallowsuserstospecifydetailedcashflowsandestimatesnetpresentvalue,internalrateofreturn,paybackperiod,andexaminessensitivityusingMonteCarloanalysis.SITExpressisanexpressversionoftheSmartInvestmentTool

whereitestimatessimilarmetrics(netpresentvalue,internalrateofreturn,paybackperiod,andthebenefitcostratio)fromuserdata.Theexpressversion,however,isanonlinetool

wheretheuserentersaggregatedtotalannualcashinflowsandoutflows;thatis,theuseronlyenterstwovaluesforeachyear:cashinflowandcashoutflow.Theexpressversionalsodoes

nothavetheabilitytoconductsensitivityanalysis.

Section

1.1

discussesmethodsforinvestmentanalysisincludingnetpresentvalue,internalrateofreturn,paybackperiod,andbenefitcostratio.Section

2

guidesauserthroughtheSmart

InvestmentToolwhileSection

3

guidestheuserthroughSITExpress.

1.1.MethodsforInvestmentAnalysis

NetpresentvalueandinternalrateofreturnareusedinbothtoolswiththeSmartInvestmentToolconductingsensitivityanalysisusingMonteCarlotechniques.Foramorecomplete

discussiononnetpresentvalue,internalrateofreturn,andMonteCarloanalysis,seeThomas(2017).Thetoolalsocalculatespaybackperiodanddiscountedpaybackperiod.

AnarticlebyGrahamandCampbell(2001pg187-243)providessomeinsightintotheusageofnetpresentvalueandinternalrateofreturnforinvestmentanalysis.Theysurveyed392chieffinancialofficers(CFO)aboutthecostofcapital,capitalbudgeting,andcapitalstructure.

SurveysweresenttoCFO’sforfirmslistedintheFortune500rankings.Approximately40%ofthefirmsweremanufacturersandanother15%werefinancial.Respondentswereaskedonascalefrom0to4,“howFrequentlydoesyourFirmusetheFollowingTechniqueswhenDecidingwhichProjectsorAcquisitionstoPursue.”Itlisted11techniqueswith0representing“neveruseit”and4meaning“alwaysuseit.”Themostprominentmethodusedineconomicdecision

makingseemstobetheinternalrateofreturn.Thesurveyrevealedthat75.61%of

respondentsalwaysoralmostalwaysusethismethodwhenmakinginvestmentdecision.Thesecondmostcommonmetricwasthenetpresentvalue,where74.93%ofrespondents

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indicatedthatalwaysuseitortheyuseitmostofthetime.ThesetwometricsaretheprimarymethodsusedintheSmartInvestmentToolandSITExpress.Themethodsarediscussedbelow.

1.1.1.PresentValue

Acriticalconceptforevaluatinganinvestmentdecisionisthetimevalueofmoney;thatis,therelationshipbetweencashflowsoccurringatdifferenttimeperiods.Forexample,receiving

$1000todayistypicallypreferredtoreceiving$1000oneyearfromnow.Inordertocomparethesetwocashflowsoccurringatdifferentdates,thefuturecashflowisdiscountedtoequateitsvaluetocashflowsreceivedtoday(Rossetal.2005pg61;Defuscoetal2015pg2-3).Thisisdonebydividingthefuturecashflowbyaninterestrateordiscountrate:

Where

Pv1=PresentvalueoffuturecashflowafteroneyearCF1=Cashflowafteroneyear

r=Discountratewhichis,typically,between0and1whereforinstancea10%discountratewouldbe0.1

Thediscountratecanbeillustratedbyconsideringhowmuchonewouldneedtobe

compensatedtoloan$1000tosomeoneforoneyear.Ifthatvalueis$100,thentheinterest

rateis10%,whichisthediscountrate.The$1100dollarsthatwouldbereceivedinoneyearisequivalentto$1000todaywhendiscountedusinga10%discountrate.

Tocalculatepresentvalueforcashflowsaftermultipleyears,thenumeratorintheequationisraisedtothepowerofthenumberofyearsthathavepassed:

Where

Pvt=PresentvalueoffuturecashflowafternumberoftyearsCFt=Cashflowinyeart

r=Discountratewhichis,typically,between0and1

1.1.2.NetPresentValue

Netpresentvalueisthedifferencebetweenthepresentvalueofallcashinflowsandthe

presentvalueofallcashoutflowsovertheperiodofaninvestment,wherepresentvalueis

futurecashflowdiscountedtoequateitsvaluetocashflowsreceivedtoday(Rossetal.2005pg61;Defuscoetal.2015pg2-3,44-45;Defuscoetal.2001pg54-56;Budnick1988pg894-895):

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Where:

It=Totalcashinflowintimeperiodtct=Totalcostintimeperiodt

r=Discountrate

t=Timeperiod,whichistypicallymeasuredinyearsT=Studyperiod

Netpresentvalue,whichaccountsforthetimevalueofmoney,isacommonmetricfor

examininganinvestment,andisconsideredasuperiormethodovermanyotherapproaches

(Rossetal.2005pg223;Helfert2001pg235).Thenetcashinflowsforeachtimeperiodare

dividedbyoneplusaselecteddiscountrateraisedtothepowerofthetimeperiod,t.Thebasicinterpretationofnetpresentvalueisthatifitispositive,itmeansthatthereturnonthe

investmentisexpectedtoexceedthediscountrate.Cashflowsarerelativetothebasecase;thus,thebasecaseissubtractedfromalternatives.Ananticipatedfollow-upquestioniswhat

therateofreturnisontheinvestment,asthenetpresentvaluedoesnotrevealthisinformation.

1.1.3.InternalRateofReturn

Internalrateofreturnisawidelyusedmetricforevaluatinginvestments.Ithasbeensuggestedthatinsomeindustries,itistheprincipalmethodusedforsuchanalyses.Theinternalrateof

returnis,essentially,thediscountrateatwhichthenetpresentvalueiszero.Thus,itis

calculatedbysettingNPVequaltozeroandsolvingforr(Rossetal.2005pg152-153;Defuscoetal.2001pg44-49).Duetothenatureofthiscalculation,individualsoftenusesoftwareortrialanderrortoidentifytheinternalrateofreturn(i.e.,selectvaryingdiscountratesinordertoidentifythevaluewherethenetpresentvalueequalszero).

1.1.4.PaybackandDiscountedPaybackPeriods

Theestimationofthepaybackperiodistheyearinwhichbenefitsfirstexceedcosts.Notethatcostsinsubsequentyearscouldresultinbenefitsexceedingcostsandthenlatercostsexceed

benefitsagain.Thetoolidentifiesthefirstyearthatbenefitsexceedcosts.Thediscountedpaybackperiodisthesameasthepaybackperiodexceptthatitusespresentvaluesor

discountscashflowsusingthediscountrate.

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1.1.5.BenefitCostRatio(BCR)

Thebenefitcostratioisthesumofcashinflowslesscashoutflowsforyears1throughthestudyperiod,excludingtheinitialinvestment.Thisvalueisthendividedbytheinitial

investment.Thevaluesarerelativetothebasecase;thus,thebasecasevalueswouldneedtobesubtracted.

1.2.MethodforSensitivityAnalysis

Toaccountforuncertainty,aprobabilisticsensitivityanalysiscanbeconductedusingMonteCarlomethods.ThistechniqueisbasedonworksbyMcKay,Conover,andBeckman(1979pg239-245)andbyHarris(1984)thatinvolvesamethodofmodelsampling.Itcanbe

implementedusingvarioussoftwarepackagessuchastheSmartInvestmentTool.Specification

involvesdefiningwhichvariablesaretobesimulated,thedistributionofeachofthevariables,andthenumberofiterationsperformed.Thesoftwarethenrandomlysamplesfromthe

probabilitiesforeachinputvariableofinterest.Threecommondistributionsthatareused

includetriangular,normal,anduniform.FormoreinformationonMonteCarloanalysis,pleaseseeThomas(2017).

ForaMonteCarloanalysis,onemustalsoselectthenumberofiterationsthatthesimulationwillrun.Eachiterationissimilartorollingapairofdice,albeit,withtheprobabilitieshavingbeenaltered.Inthiscase,thedicedeterminethepriceofthebearings.Thenumberof

iterationsisthenumberoftimesthissimulationiscalculated.ThebenefitofMonteCarlo

analysisisinthesituationwheretherearemanyvariablesthatcanfluctuate(e.g.,priceof

energy,materials,andlabor).Insteadofhavingjustonepricefluctuating,maybeadozenpricesfluctuate.

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2.SmartInvestmentTool

TheSmartInvestmentToolisanExceltoolthatcalculatespresentvalue,netpresentvalue,

internalrateofreturn,paybackperiodinyears,anddiscountedpaybackperiodinyears.The

toolcanbedownloadedat:

/services-resources/software/smart-

investment-tool.

ThetoolhasbeentestedonMicrosoftExcelVersion2308Build

16.0.16731.2054232-bit.Thefirstscreentheuserseesafterdownloadingandopeningthetoolisthe“Intro”tabshownin

Figure2.1.

Togetstarted,theusercaneitherclickonthe“Start”tabhighlightedinblueatthebottomorclickthe“Let’sGetStarted”button.The“Start”tab

providesaseriesofstepsforusingthetoolalongwithequationsforusingtheMonteCarloAnalysisfunction(see

Figure2.2)

.

Afterreviewingtheinstructions,theuserneedstonavigatetothe“Parameters”tabbyeitherclickingonitatthebottomorclickingthe“Next”button.The“Parameters”tab,shownin

Figure2.3,

iswheretheuserbeginsenteringinformation,includingthenumberofalternativesplusthebasecase(maximumof15),thebaseyear,studyperiod(maximumof100years),andwhetherthevaluesareinconstantorcurrentdollars.Constantdollarsareintermsofasingleyearwhilecurrentdollarsareintermsoftheyearinwhichthecostoccurs.Whenusing

constantdollars,thediscountrateprimarilyreflectstheuserstimevalueofmoney(i.e.,realdiscountrate).Whenusingconstantdollars,thediscountrateneedstoreflecttheuserstimevalueofmoneyalongwithaprojectedrateofinflation(i.e.,nominaldiscountrate).After

enteringtherelevantinformation,theuserclicksthe“Submit”button,whichrevealsatabnamed“Calculate”andatabforthebasecaseandeachalternative.

Figure2.1:IntroTaboftheSmartInvestmentTool

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Figure2.2:"Start"Tab

The“Calculate”Tab,shownin

Figure2.4,

includesabuttonto“RunInvestmentAnalysis”andto

“RunMonteCarloAnalysis.”AfterenteringdatainthetabsfortheBaseCaseandeach

alternative,theuserclicksthe“RunInvestmentAnalysis”buttontocalculatetheinvestmentanalysisresults.

2.1.InvestmentAnalysis

Thebasecaseandalternativestabs(seeexamplein

Figure2.5)

allowtheusertoenteranameforthebasecaseandalternativesalongwithuptoonethousandcashflowitems(e.g.,costsorrevenue)fortheinitialinvestment,futurecosts/revenue,andsalvagevalue.Eachcashflow

itemcanhaveaname,shortdescription,andindicatetherelevantstakeholder.Cashinflows,includingrevenueorsavings,mustbeenteredaspositivevalueswhilecashoutflowssuchascostsandlossesmustbeenteredasnegativevalues.The“InitialInvestment”cashflowitemsoccuratyearzero.

Valuesfortheinitialinvestmentarenotadjustedinanywayforestimatingpresentvalueornetpresentvalue.“Futurecosts/revenue”occuratyearonethroughtheendofthestudyperiod.Again,theusercanenteranameanddescriptionofeachcashflow.Theusermustalsoenterayearof

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Figure2.3:"Parameters"Tab

Figure2.4:"Calculate"Tab

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Figure2.5:TabsfortheBaseCaseandAlternatives

occurrenceinthe“Year(s)ofOccurrence”column.Ifthecashflowisrecurring,theusercanindicatetheyearsofoccurrencebyenteringthebeginningandendingyearswithahypheninbetween.Forinstance,“1-8”indicatesthatthecashflowoccursinyearsonethrougheight.Iftheyearsarenotsequential,thentheusercanuseacommatoseparatetheyears.For

instance,“2,5,8”wouldindicatethatthecashflowoccursinyears2,5,and8.Notethat

hyphensandcommascanbeusedtogethertoindicatebothsequentialandnonsequential

yearsofoccurrence(e.g.,1,5,8-10).“FutureCosts/Revenue”areadjustedusingtheequationinSection

1.1.1

alongwiththediscountrateandtheyearofoccurrenceindicatedbytheusertocalculatenetpresentvalue.

Inthe“FutureCosts/Revenue”columnthereisanoptional“AnnualEscalationRate”thatallowstheusertoindicatearateatwhichthecashflowincreases.Theescalationiscalculatedsuch

thatitescalatesforeveryyearofthestudyperiod;thus,ifa$100costhasa10%annual

escalationrate,thecostinyearonewillbe$110.Ifthecostoccursinyeartwoitwillbe$121.

The“SalvageValue”categoryisforanyvalueleftattheendofthestudyperiodthatisnotaccountedfor,suchasthevalueofmachinerypurchasedfortheinvestment.Similartotheothertwocategories,theusercanenteraname,description,andindicatearelevant

stakeholder.Salvagevaluesarecashinflowsandshouldbeenteredaspositivevalues.Eachofthecashflowcategories(i.e.,“InitialInvestment,”“FutureCosts/Revenue,”and“Salvage

Value”)haveacolumnforan“EquationforMonteCarloAnalysis.”Inthiscolumn,theusercanenteroneofthedistributionsfromthe“Start”tab.ThisfunctionisdescribedinSection

2.2.

Oncetheuserhasenteredalltheircashflowdataintothetool,theycancalculatethepresentvalues,netpresentvalues,internalrateofreturn,paybackperiod,anddiscountedpayback

periodbynavigatingtothe“Calculate”tabandclickthe“RunInvestmentAnalysis”button.This

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willrevealthreetabs:“Results,”“AnnualPresentValues,”and“AnnualNPV.”AdiscussionofinterpretingresultsisfoundinSection

2.3.

2.2.MonteCarloAnalysis

ToconductaMonteCarloAnalysis,theuserneedstoenterequationsinthe“BaseCase”and

alternatives(e.g.,“Alternative1”and“Alternative2”)tabs.Therearesevendistributionsthattheusercanutilize,asshownin

Table2.1.

Forthecashflowitemstheuserwantstovary,oneoftheequationsmustbeenteredintoeitherthe“BaseCase”oralternativestabsunderoneofthethreecolumnslabeled“EquationforMonteCarloAnalysis”(seeexamplein

Figure2.6)

.Forinstance,supposeoneofthecostitemsisfuel.Theuserestimatesthatitisa$5000annualcost

Table2.1:MonteCarloFunctions

TriangularDistribution:

EquationVariables

=RandomTriangular(low,mode,high)lowistheminimum,

highisthemaximum

modeisthemostlikelyvalue

NormalDistribution:

EquationVariables

=RandomNorm(mean,stdev)meanisthemean

stdevisthestandarddeviation

LognormalDistribution:

EquationVariables

=RandomLognorm(mean,stdev)meanisthemean

stdevisthestandarddeviation

DiscreteUniform:

EquationVariables

=RANDBETWEEN(bottom,top)bottomisthelowestvalue

topisthehighestvalue

ContinuousUniform:

EquationVariables

=RandomUniform(low,high)lowistheminimumvaluehighisthemaximum

Yes/No

EquationVariables

=yes(prob)

probisavaluebetween0and1that

representstheprobabilityofayes,whereyesequals1andnoequals0

PoissonDistribution:

EquationVariables

=RandomPoisson(mean)meanisthemean

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butmightrangebetween$4000and$7000.Theymightuseatriangulardistributionandenterthefollowingunderthe“EquationforMonteCarloAnalysis”columnnexttothe$5000cost:

=RandomTriangular(4000,5000,7000)

TheusercanthenenterequationsforanyothervaluesthattheywanttovaryinaMonteCarloanalysis.Iftheuserdoesnotwanttovaryacashflow,thenitisnotnecessarytoenteran

equation.

Oncetheuserhasenteredequationsforallthecashflowstheywantvaried,theycannavigatetothe“Calculate”tab.Nexttothe“RunMonteCarloAnalysis”button,thereisacelllabeled

“SelecttheNumberofTrialsforMonteCarloAnalysis.”AsdiscussedinSection

1.2,

toestimateanitemaMonteCarloanalysisselectsfromadistributionandtheniteratesthisprocess.The

numberofiterationsneedstobeselectedbytheuser.Typically,1000ormoreiterationsare

used.Oncetheuserentersthenumberofiterations,theycanclickthe“RunMonteCarlo

Analysis”button.NotethateachtimeaMonteCarloanalysisisrunitproducesdifferentresults,asvaluesareselectedbasedonprobabilities.Aftertheanalysisiscomplete,twotabsare

revealed.Thefirstisthe”MonteCarloResults”tab,whichdisplaysstatisticsforeachofthemetrics:presentvalue,netpresentvalue,internalrateofreturn,paybackperiod,and

discountedpaybackperiod.Thelowestvalue(low),average,median,andhighestvalueamongtheiterations(i.e.,MonteCarlosimulations)foreachmetric(e.g.,netpresentvalueand

Figure2.6:MonteCarloAnalysisColumnforFutureCosts/Revenue

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Figure2.7:"Calculate"Tab

internalrateofreturn)isshown.Thesecondtab,named“MCData,”providestheestimatedvaluesforthemetricsforeachiteration.Theusermightneedtoscrolltothelefttoseethedata.Userscanusethisdatatocalculatetheirowndescriptivestatistics,includingthe95%confidenceinterval.

2.3.ResultsandInterpretation

Oncetheuserhasclickedthe“RunInvestmentAnalysis”tabandthe“RunMonteCarlo

Analysis”tab,fivetabsarerevealedwiththreeofthembeingfortheinvestmentanalysisandtwobeingfortheMonteCarloanalysis.Theresultstabshowsthepresentvalue,netpresent

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value,andinternalrateofreturn(see

Figure2.8)

.Apositivenetpresentvalueindicatesthattheinvestmentiseconomicalwhencomparedtothebasecaseorthebusinessasusualcase.Sincetheexaminationofthealternativesisincomparisontothebasecase,thereisnonetpresent

value,internalrateofreturn,paybackperiod,ordiscountedpaybackperiodcalculated.Thesecellsindicate“NA”fornotapplicable.Aninternalrateofreturnthatexceedsauser’sdiscountrateindicatesaneconomicalinvestmentwhencomparedtothebasecase.Thepaybackperiodismoreofaninformationalmetricratherthanoneusedtoidentifyeconomicalinvestments,

butifthepaybackperiodis“None”thenthereisnotapointinthestudyperiodwherebenefitsexceedcosts;thus,theinvestmentisnoteconomical.Manyusersmayconsiderlongerpaybackperiodsasbeingeconomicallyunfavorable.

Thetab“AnnualPresentValues”presentsthepresentvaluecashflowssummedtogetherforeachyear.Thetab“AnnualNPV”providesthesumofpresentvaluecashflowsforeachyearlessthoseforthe“BaseCase.”Thesetwotabsareprovidedforinformationalpurposesandbythemselveswithoutadditionalcalculationsdonotindicatewhetheraninvestmentwouldbeconsideredeconomical.

The”MonteCarloResults”tabprovidesastatisticalsummaryofthedatainthe“MCData”tabwhenaMonteCarloanalysisisconducted.Thesevaluesgiveanideaofthepossibleoutcomesgiventhedistributionsenteredbytheuser.Thedatainthe“MCData”tabcanbeusedfor

furtheranalysissuchasidentifyingthepercentofiterationsthatwerecosteffective.

Figure2.8:"Results"Tab

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3.SITExpress

SmartInvestmentToolExpress(SITExpress)isa

simplifiedonlineversionoftheSmartInvestmentTool.Itislocatedat:

/.

Allthedata,

information,andresultsareshownonasinglewebpage.Inthefirststep(see

Figure3.1)

,

whichisfoundbyscrollingdownthepage,theuserinputsgeneralinformation,including

projectname,description,thenumberofalternatives,nameforthebasecase,

alternativenames,thestudyperiod,the

discountrate,andwhethertheanalysisisincurrentorconstantdollars.Thereisa

maximumof5alternativesandthestudy

periodcanbenolongerthan25years.Theuserneedstoentertextintotheprojectnameand

descriptionforthecalculationstobe

completed.Thelabelsforthebasecaseand

alternativescanbechangedorleftasthe

defaulttext.Theuserwillneedtoselecta

discountrateforthecalculations.Whenusingconstantdollars,thediscountrateisprimarilytheuserstimevalueofmoney(i.e.,real

discountrate).Whenusingcurrentdollars,thediscountrateneedstoreflecttheuserstime

valueofmoneyalongwithaprojectedrateof

inflation(i.e.,nominaldiscountrate).Thereisafieldfortheinflationrate;however,itisfortheuser’sinformationanddoesnotaffectthe

calculations.

Thesecondstep

(Figure3.2)

,whichisfoundbyscrollingdownthepagefurther,iswheretheuserenterscashflowdata.Eachyearofthe

studyperiodislistedontheleft.Theusercaninputonecostitemforyears0throughtotheendofthestudyperiodandonerevenueitemforyears1throughtotheendofthestudy

periodalongwithaninitialinvestment.Thus,theusermightneedtoadd

Figure3.1:SITExpress,StepOne

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Figure3.2:SITExpress,StepTwo

costsorrevenueitemsthatoccurinthesameyeartogethertoinputinthetool.Userscan

manuallytypeinputsorcopyandpastefromaspreadsheet(e.g.,Excel).Oncethedatais

entered,theusercanclickthe“RunResults”buttontocalculatetheresultsthatappearinStepThree.

InStepThree,theresultsaredisplayedandincludethepresentvalue,netpresentvalue,

internalrateofreturn(IRR),paybackperiod,discountedpaybackperiod,andbenefitcostratio(see

Figure3.3)

.ThecalculationoftheseitemsisdiscussedinSections

1.1.1

through

1.1.5.

Thepresentvalueisforinformationalpurposes.Apositivenetpresentvalueindicatesthatthe

investmentiseconomicalwhencomparedtothebasecase.Sincetheexamination