Users Guide

Users Guide

P2/FINANCEVersion 3.0

in Excel Version 5.0 for Windows

Tellus InstituteCopyright ( 1996

Tellus Institute

P2/FINANCEVersion 3.0

in Excel Version 5.0 for Windows

Users Guide

Tellus Institute11 Arlington StreetBoston, MA 02116-3411USA

Telephone:617-266-5400Fax:617-266-8303Email:p2finance@tellus.com

Copyright ( 1996 Tellus Institute, Boston, MA USA. All rights reserved. No part of this publication or associated software may be reproduced or transmitted in any form or by any means, without prior written permission.

November 1996

Acknowledgments

Tellus Institute developed P2/FINANCE Version 3.0 with funding from the US Environmental Protection Agencys Pollution Prevention Division. We gratefully acknowledge the support provided by Susan McLaughlin (EPA Project Manager), Holly Elwood, Kathy Seikel, and Alan Ehrlich of EPA.

We thank all of the reviewers of both the software and Users Guide: Cathy Andrews, Naval Surface Warfare Center; Robert Butner, Battelle Seattle Research Center; and Keith Weitz and Aarti Sharma, Research Triangle Institute. We also thank users of earlier versions of P2/FINANCE who provided us with valuable feedback on how to improve the tool.

The Tellus project team included Angela Dierks, Deborah Savage (Project Manager), Pablo Martinez, Rob Graff, Katherine Bidwell, David Miller, Dan Smith, Diana Zinkl, and Allen White.Table of Contents

TOC \t "Heading 1,2,Heading 2,3,Heading 3,4,Heading,1" Preface GOTOBUTTON _Toc372534297 PAGEREF _Toc372534297 i1. IntroductionIntroduction1 GOTOBUTTON _Toc372534299 PAGEREF _Toc372534299 1Basic Operations1 GOTOBUTTON _Toc372534300 PAGEREF _Toc372534300 3Getting Started in P2/FINANCE1 GOTOBUTTON _Toc372534301 PAGEREF _Toc372534301 4Elements of a Financial Analysis1 GOTOBUTTON _Toc372534302 PAGEREF _Toc372534302 4Terminology1 GOTOBUTTON _Toc372534303 PAGEREF _Toc372534303 4Cost Item1 GOTOBUTTON _Toc372534304 PAGEREF _Toc372534304 5Cost Category1 GOTOBUTTON _Toc372534305 PAGEREF _Toc372534305 5Scenario1 GOTOBUTTON _Toc372534306 PAGEREF _Toc372534306 5Analysis1 GOTOBUTTON _Toc372534307 PAGEREF _Toc372534307 5Project1 GOTOBUTTON _Toc372534308 PAGEREF _Toc372534308 5Format Conventions1 GOTOBUTTON _Toc372534309 PAGEREF _Toc372534309 6P2/FINANCE Administrative Commands1 GOTOBUTTON _Toc372534310 PAGEREF _Toc372534310 6P2/FINANCE Organization1 GOTOBUTTON _Toc372534311 PAGEREF _Toc372534311 6Moving Between Sheets1 GOTOBUTTON _Toc372534312 PAGEREF _Toc372534312 6Moving Between Scenarios1 GOTOBUTTON _Toc372534313 PAGEREF _Toc372534313 7Printing1 GOTOBUTTON _Toc372534314 PAGEREF _Toc372534314 7Help Function1 GOTOBUTTON _Toc372534315 PAGEREF _Toc372534315 7Calc Button1 GOTOBUTTON _Toc372534316 PAGEREF _Toc372534316 8Excel Tips1 GOTOBUTTON _Toc372534317 PAGEREF _Toc372534317 8Spreadsheet Protection1 GOTOBUTTON _Toc372534318 PAGEREF _Toc372534318 9Computer Specifications1 GOTOBUTTON _Toc372534319 PAGEREF _Toc372534319 9Hardware and Software Specifications1 GOTOBUTTON _Toc372534320 PAGEREF _Toc372534320 9Installation1 GOTOBUTTON _Toc372534321 PAGEREF _Toc372534321 102. Step by Step InstructionS: Entering DataProject Title Sheet2 GOTOBUTTON _Toc372534323 PAGEREF _Toc372534323 1Accessing Scenarios2 GOTOBUTTON _Toc372534324 PAGEREF _Toc372534324 1Printing Scenarios2 GOTOBUTTON _Toc372534325 PAGEREF _Toc372534325 1Accessing Help2 GOTOBUTTON _Toc372534326 PAGEREF _Toc372534326 1Calculating2 GOTOBUTTON _Toc372534327 PAGEREF _Toc372534327 1Default Parameters Sheet2 GOTOBUTTON _Toc372534328 PAGEREF _Toc372534328 3Time Value of Money2 GOTOBUTTON _Toc372534329 PAGEREF _Toc372534329 4Global Parameters2 GOTOBUTTON _Toc372534330 PAGEREF _Toc372534330 5Inflation Rate2 GOTOBUTTON _Toc372534331 PAGEREF _Toc372534331 5Discount Rate2 GOTOBUTTON _Toc372534332 PAGEREF _Toc372534332 5Income Tax Rates2 GOTOBUTTON _Toc372534333 PAGEREF _Toc372534333 7Depreciation2 GOTOBUTTON _Toc372534334 PAGEREF _Toc372534334 8Scenario Parameters2 GOTOBUTTON _Toc372534335 PAGEREF _Toc372534335 11Name2 GOTOBUTTON _Toc372534336 PAGEREF _Toc372534336 11Investment Year2 GOTOBUTTON _Toc372534337 PAGEREF _Toc372534337 11Lifetime2 GOTOBUTTON _Toc372534338 PAGEREF _Toc372534338 11Start Year2 GOTOBUTTON _Toc372534339 PAGEREF _Toc372534339 12End Year2 GOTOBUTTON _Toc372534340 PAGEREF _Toc372534340 12Accessing Scenarios2 GOTOBUTTON _Toc372534341 PAGEREF _Toc372534341 12Printing Scenarios2 GOTOBUTTON _Toc372534342 PAGEREF _Toc372534342 12Accessing Help2 GOTOBUTTON _Toc372534343 PAGEREF _Toc372534343 13Calculating2 GOTOBUTTON _Toc372534344 PAGEREF _Toc372534344 13Initial Investment Costs Sheet2 GOTOBUTTON _Toc372534345 PAGEREF _Toc372534345 14Salvage Value2 GOTOBUTTON _Toc372534346 PAGEREF _Toc372534346 16Tailoring the Financial Parameters2 GOTOBUTTON _Toc372534347 PAGEREF _Toc372534347 16Working Capital2 GOTOBUTTON _Toc372534348 PAGEREF _Toc372534348 17Accessing Scenarios2 GOTOBUTTON _Toc372534349 PAGEREF _Toc372534349 18Printing Scenarios2 GOTOBUTTON _Toc372534350 PAGEREF _Toc372534350 18Accessing Help2 GOTOBUTTON _Toc372534351 PAGEREF _Toc372534351 18Calculating2 GOTOBUTTON _Toc372534352 PAGEREF _Toc372534352 18Annual Operating Costs Sheet2 GOTOBUTTON _Toc372534353 PAGEREF _Toc372534353 20Escalation Rate2 GOTOBUTTON _Toc372534354 PAGEREF _Toc372534354 21Tailoring the Financial Parameters2 GOTOBUTTON _Toc372534355 PAGEREF _Toc372534355 21Accessing Other Scenarios2 GOTOBUTTON _Toc372534356 PAGEREF _Toc372534356 22Printing Scenarios2 GOTOBUTTON _Toc372534357 PAGEREF _Toc372534357 22Accessing Help2 GOTOBUTTON _Toc372534358 PAGEREF _Toc372534358 22Calculating2 GOTOBUTTON _Toc372534359 PAGEREF _Toc372534359 223. Calculating the Bottom Line: Generating ReportsScenario Summary Report3 GOTOBUTTON _Toc372534361 PAGEREF _Toc372534361 2Accessing Other Scenarios3 GOTOBUTTON _Toc372534362 PAGEREF _Toc372534362 3Printing Scenarios3 GOTOBUTTON _Toc372534363 PAGEREF _Toc372534363 3Accessing Help3 GOTOBUTTON _Toc372534364 PAGEREF _Toc372534364 3Tax Deduction Schedule3 GOTOBUTTON _Toc372534365 PAGEREF _Toc372534365 4Accessing Other Scenarios3 GOTOBUTTON _Toc372534366 PAGEREF _Toc372534366 6Printing Scenarios3 GOTOBUTTON _Toc372534367 PAGEREF _Toc372534367 6Accessing Help3 GOTOBUTTON _Toc372534368 PAGEREF _Toc372534368 6Incremental Cash Flow Analysis Sheet3 GOTOBUTTON _Toc372534369 PAGEREF _Toc372534369 7Accessing Other Scenarios3 GOTOBUTTON _Toc372534370 PAGEREF _Toc372534370 8Printing Scenarios3 GOTOBUTTON _Toc372534371 PAGEREF _Toc372534371 9Accessing Help3 GOTOBUTTON _Toc372534372 PAGEREF _Toc372534372 9Incremental Profitability Analysis Sheet3 GOTOBUTTON _Toc372534373 PAGEREF _Toc372534373 10Net Present Value (NPV)3 GOTOBUTTON _Toc372534374 PAGEREF _Toc372534374 10Internal Rate of Return (IRR)3 GOTOBUTTON _Toc372534375 PAGEREF _Toc372534375 10Discounted Payback3 GOTOBUTTON _Toc372534376 PAGEREF _Toc372534376 11Accessing Scenarios3 GOTOBUTTON _Toc372534377 PAGEREF _Toc372534377 12Printing Scenarios3 GOTOBUTTON _Toc372534378 PAGEREF _Toc372534378 12Accessing Help3 GOTOBUTTON _Toc372534379 PAGEREF _Toc372534379 12Calculating3 GOTOBUTTON _Toc372534380 PAGEREF _Toc372534380 134. Case StudiesAn Example of a Basic Analysis4 GOTOBUTTON _Toc372534382 PAGEREF _Toc372534382 1Conceptualize the Analysis4 GOTOBUTTON _Toc372534383 PAGEREF _Toc372534383 1Develop a Cost Inventory4 GOTOBUTTON _Toc372534384 PAGEREF _Toc372534384 1Collect Cost Data4 GOTOBUTTON _Toc372534385 PAGEREF _Toc372534385 2Enter the Financial Parameters4 GOTOBUTTON _Toc372534386 PAGEREF _Toc372534386 4Default Parameters sheet4 GOTOBUTTON _Toc372534387 PAGEREF _Toc372534387 5Enter the Cost Data4 GOTOBUTTON _Toc372534388 PAGEREF _Toc372534388 5Initial Investment Costs sheet4 GOTOBUTTON _Toc372534389 PAGEREF _Toc372534389 5Annual Operating Costs sheet4 GOTOBUTTON _Toc372534390 PAGEREF _Toc372534390 6Generate Reports4 GOTOBUTTON _Toc372534391 PAGEREF _Toc372534391 7Scenario Summary sheet4 GOTOBUTTON _Toc372534392 PAGEREF _Toc372534392 7Tax Deduction Schedule sheet4 GOTOBUTTON _Toc372534393 PAGEREF _Toc372534393 7Incremental Cash Flow Analysis sheet4 GOTOBUTTON _Toc372534394 PAGEREF _Toc372534394 7Incremental Profitability Analysis sheet4 GOTOBUTTON _Toc372534395 PAGEREF _Toc372534395 8Summary of Results4 GOTOBUTTON _Toc372534396 PAGEREF _Toc372534396 8An Example of a Complex Analysis4 GOTOBUTTON _Toc372534397 PAGEREF _Toc372534397 25Conceptualize the Analysis4 GOTOBUTTON _Toc372534398 PAGEREF _Toc372534398 25Develop a Cost Inventory4 GOTOBUTTON _Toc372534399 PAGEREF _Toc372534399 25Collect Cost Data4 GOTOBUTTON _Toc372534400 PAGEREF _Toc372534400 26Enter the Financial Parameters4 GOTOBUTTON _Toc372534401 PAGEREF _Toc372534401 33Default Parameters for the Analysis4 GOTOBUTTON _Toc372534402 PAGEREF _Toc372534402 33Enter the Cost Data4 GOTOBUTTON _Toc372534403 PAGEREF _Toc372534403 33Initial Investment Costs sheet4 GOTOBUTTON _Toc372534404 PAGEREF _Toc372534404 33Annual Operating Costs sheet4 GOTOBUTTON _Toc372534405 PAGEREF _Toc372534405 34Generate Reports4 GOTOBUTTON _Toc372534406 PAGEREF _Toc372534406 35Scenario Summary sheet4 GOTOBUTTON _Toc372534407 PAGEREF _Toc372534407 35Tax Deduction Schedule sheet4 GOTOBUTTON _Toc372534408 PAGEREF _Toc372534408 35Incremental Cash Flow Analysis sheet4 GOTOBUTTON _Toc372534409 PAGEREF _Toc372534409 36Incremental Profitability Analysis sheet4 GOTOBUTTON _Toc372534410 PAGEREF _Toc372534410 36Summary of Results4 GOTOBUTTON _Toc372534411 PAGEREF _Toc372534411 36AppendicesAppendix A: Copy of the Blank SpreadsheetA1Appendix B: Total Cost Assessment Cost InventoryB GOTOBUTTON _Toc372534415 PAGEREF _Toc372534415 1Appendix C: Glossary of Financial TermsC GOTOBUTTON _Toc372534416 PAGEREF _Toc372534416 1

Preface

Welcome to P2/FINANCE Version 3.0 programmed in Excel Version 5.0 for Windows. This powerful spreadsheet-based program is designed to assist you in evaluating the profitability of pollution prevention (P2) and other investments with environmental implications. Version 3.0 represents a major upgrade of P2/FINANCE in which flexibility and user friendliness couple to create a more versatile financial analysis tool. A grant from US Environmental Protection Agencys Pollution Prevention Division supported the development of this version of P2/FINANCE.

The Users Guide offers step-by-step instructions for installing and using P2/FINANCE, as well as an introduction to the principles of financial analysis. We recommend that you read this Guide while using the software for your first few analyses. The Guide assumes familiarity with Windows and Excel. For further information on these software packages, please refer to an appropriate user guide.

This Guide is organized into three main sections. The Introduction explains the Total Cost Assessment framework used by P2/FINANCE, computer requirements for the software, and installation procedures. The Step-by-Step Instructions provide detailed instructions on how to conduct a financial analysis with P2/FINANCE and define relevant financial analysis concepts. The section on Calculating the Bottom Line: Generating Reports describes the various software screens that illustrate the calculated results and the printed reports you can generate. The Case Studies demonstrate real world application of the software through two case studies: one basic analysis and a second, more complex, analysis.

1. IntroductionIntroduction

Before you make a modification to an industrial process (e.g., switch to an aqueous cleaner or purchase a solvent still to recover spent raw materials), you need to understand the financial impacts of such a modification. P2/FINANCE helps your decision-making by providing a framework for assessing the profitability of potential investments. In a P2/FINANCE analysis you estimate the costs and revenuesboth Initial Investment Costs and Annual Operating Costs and revenuesof a potential pollution prevention investment or other investment with environmental implications. This information, together with other qualitative information, provides a solid foundation for making your investment decision.

Pollution Prevention (P2)Pollution prevention (P2) refers to techniques that reduce pollutants at their source rather than controlling pollutants through end-of-pipe controls after they are generated. For example, if you are attempting to minimize volatile organic compound (VOC) emissions, P2 techniques may include implementing workplace practices that increase the efficiency of the use of VOC-containing materials or reducing or eliminating VOC-containing materials altogether. A pollution control approach, on the other hand, would limit the release of VOCs into the atmosphere via control technologies such as carbon adsorption or incineration. P2 has several advantages over traditional pollution control approaches:

It may be more effective than pollution control at reducing the amount of pollution because it reduces in-process emissions;It reduces legal liability costs by decreasing the possibility of chemical waste accidents and disposals;It may reduce costs associated with the procurement, storage, monitoring, permitting, and disposal of hazardous materials;It may enhance production efficiency, thereby decreasing production costs;

It may allow firms to avoid future regulatory requirements; andIt may enhance corporate image and stakeholder relations.

Total Cost Assessment(TCA)Companies commonly think of environmental investments from a must-do perspective, as a costly diversion from profit-adding projects. Total Cost Assessment (TCA) is an approach to overcoming these obstacles to P2 investments, putting them on the same footing as other potential uses of a firms limited capital resources. TCA differs from conventional practices in four key ways:

Expands the inventory of costs, savings, and revenues to include indirect, less tangible items typically omitted from project profitability analyses;

Highlights the accurate allocation of costs and savings to specific process and product lines rather than lumping them into overhead accounts;

Extends the time horizon of the analysis to account for longer-term costs and savings typical of P2 investments; and

Uses profitability indicators capable of capturing longer-term costs and savings and the time value of money.

In short, P2/FINANCE helps operationalize TCA concepts by providing a tool for an expanded cost/savings inventory, accurate cost allocation, longer time horizons, and multiple profitability indicators. Together, these elements help provide a clear picture of the true profitability of a P2 project.

Analysis StructureIn a P2/FINANCE analysis, you define the financial parameters (e.g., tax rate, inflation rate) for the project and then input cost and revenue data for both your business-as-usual operations (Base Scenario) and a proposed investment (Alternative Scenario). In each project, you may define two Alternative Scenarios to compare with a single Base Scenario. P2/FINANCE generates four reports(Scenario Summary, Tax Deduction Schedule, Incremental Cash Flow Analysis, and Incremental Profitability Analysis. Each offers a different perspective to assist you in understanding the economics of a potential P2 investment.

Enhanced FlexibilityVersion 3.0 of P2/FINANCE contains significant enhancements to Version 2.2 in terms of flexibility and specificity. Using this version, you can define investments that occur over multiple years, specify an escalation rate for individual Annual Operating Cost categories, and select a different depreciation method for each Initial Investment Cost category. P2/FINANCE provides this flexibility while maintaining a user-friendly structure, enabling first-time users to easily input cost data and calculate profitability.

On-line Help

P2/FINANCE contains on-line help screens to walk you through the steps of a TCA analysis. Each sheet of the software contains a help screen that briefly describes the function of the sheet and defines relevant financial analysis concepts. As these help screens provide basic instructions only, we encourage you to refer to the Users Guide for more detailed instructions.

Obtaining P2/FINANCEInterested parties may request a free copy of P2/FINANCE Version 3.0 from the US Environmental Protection Agencys Pollution Prevention Information Clearinghouse at (202) 260-1023 or ppic@epamail.epa.gov. The software also is available from EPAs web site: http://es.inel.gov/partners/acctg. Some technical support is available from Tellus Institute. To obtain assistance, telephone 617-266-5400 and request P2/FINANCE Technical Support. Email inquiries may be sent to p2finance@tellus.com.

Basic Operations

P2/FINANCE helps you make decisions about how to most effectively use limited capital resources. It calculates the profitability of a potential investment by weighing the initial cost of the investment against the revenues or operating cost savings generated by the investment. A typical financial analysis using P2/FINANCE includes the following steps:

Conceptualize the Analysis; Enter the Financial Parameters;Enter the Cost Data; andGenerate Reports.

Concept-ualize the AnalysisYour first step in P2/FINANCE is to conceptualize, or design, the analysis. Are you considering an expansion of your current capacity? Are you considering a process modification? As you envision the analysis, consider the broad categories of costs that either occur one time as part of the initial investment (e.g., Site Preparation costs) or might change on an annual basis as a result of the investment (e.g., Utility costs). To assist you in developing this list of cost categories, refer to the generic cost/savings inventory found in Appendix A. Using this generic inventory, ask yourself two questions about each cost category: 1) Are such costs relevant to the analysis? and 2) Are such costs significant? For each cost category that you deem to be both relevant and significant, identify the specific cost items (e.g., electricity, gas) within that cost category related to the analysis. With your customized TCA cost inventory in hand, prioritize the cost items, choosing to most accurately quantify those items that make best use of your limited resources. Cost items that you decide not to include in the quantitative analysis should be noted as qualitative considerations, so that you continue to keep the broader picture in view.

Enter the Financial Params.With a vision of the analysis in mind, your next P2/FINANCE task consists of specifying the default financial parameters for the analysis. These parameters provide a framework for the analysis and include parameters related to the project as a whole as well as those specific to individual scenarios. Many of these default financial parameters can be tailored later for the individual cost categories within each scenario. Define the Inflation Rate, Discount Rate, Income Tax Rates, default Depreciation Method, and default Depreciation Period for the project, as well as the Name, default Investment Year, and default Lifetime for each scenario.

Enter the Cost DataInput the relevant initial investment and Annual Operating Costs and revenues for both the Base and the Alternative Scenarios. As you enter cost data, reconfirm that you have included all relevant costs, even those indirectly related to the potential investment. For example, a change to painting operations may require a change in upstream degreasing operations with relevant cost implications. These second order effects can be as significant as, or even more significant than, direct first order effects.

Generate ReportsOnce you have defined the financial parameters and cost data for an analysis, the next step is to generate reports in P2/FINANCE. You can access Scenario Summaries to review the contents of each scenario, Tax Deduction Schedules to take a closer look at the tax deductions allowed for each scenario, Incremental Cash Flow Analyses to calculate the discounted cash flows of the comparison between a Base and an Alternative Scenario, and the Incremental Profitability Analysis to review profitability indicators such as Net Present Value, Internal Rate of Return, and Discounted Payback.

Getting Started in P2/FINANCE

This section sets the stage for the remaining sections of the Guide by detailing the elements of a financial analysis, defining important terms used throughout the Guide, and providing some tips on using Excel.

Elements of a Financial Analysis

Financial analysis is used to estimate the profitability of a potential investment. It includes two types of information: 1) financial parameters and 2) cost and revenue data. The financial parameters include information on depreciation, inflation, income tax rates, your firms discount rate, and the timing of the Initial Investment and Annual Operating Costs. (These parameters are discussed in more detail on pages 2-3 through 2-12 of the Guide). The cost and revenue data include both Initial Investment Costs and Annual Operating Costs.

Note: Throughout the Guide cost is used to indicate both costs, cost savings, and revenues except where noted. Profitability is used throughout the Guide as a measure of the investments performance, not as a formal accounting term.

Terminology

P2/FINANCE combines financial and cost elements together to create a financial analysis. Terms are used consistently to differentiate these elements and their functions. Figures for many of the terms illustrate the relationship between the various P2/FINANCE elements.

Cost ItemCost item refers to the name of a specific cost or revenue included in the analysis. Cost items can be related to the Initial Investment or to Annual Operating Costs and revenues. Steam, for example, is an operating cost item. Identify the relevant cost items for each scenario, keeping in mind that they can vary from one scenario to another.

Cost CategoryUtilitiesCost items that are similar to one another are grouped together into broader cost categories. Again, there are cost categories for both Initial Investment and Annual Operating Costs. For example, the cost item Steam would be included in the Annual Operating Cost category called Utilities. In P2/FINANCE, you can modify the names of the cost categories to be used in the analysis while working on Alternative Scenario 1. These changes to Alternative Scenario 1 also will carry through to Alternative Scenario 2 and the Base Scenario because cost category names must remain consistent between the Base and the Alternative Scenarios for reporting purposes.

ScenarioScenarioA scenario contains all cost data and financial parameters related to a potential investment (an Alternative Scenario) or for the current business-as-usual practices (the Base Scenario).

AnalysisAnalysisAn analysis estimates the profitability of an Alternative Scenario in comparison with the Base Scenario. To calculate the profitability of an investment without comparing it to business-as-usual operations, leave the Base Scenario empty.

ProjectProjectA project comprises all data from the Base Scenario and Alternative Scenarios and is equivalent to an Excel worksheet file.

Format Conventions

Formats such as color and font styles are used consistently throughout P2/FINANCE and its Users Guide.

P2/FINANCE uses color to indicate areas for user input throughout the software. Only cells with a yellow background allow user input; all other cells are locked and do not allow user modifications. Cells with a green or blue background contain important on-screen information for the user.

P2/FINANCEs User Guide uses font styles to illustrate certain features of the software. Bold text indicates user input. Similarly, text phrases with the first letter of each word capitalized reflect the labels of data entry fields and other on-screen titles. For example, in the statement, Again, because the vendor disposal cost for both products does not begin until Year 4, the environmental engineer defines the Start Year for that category as 4, the bold text indicates that the user should input 4 into the field labeled Start Year. The titles of all sheets in the software, such as the Default Parameters sheet, are also capitalized.

P2/FINANCE Administrative Commands

P2/FINANCE OrganizationP2/FINANCE consists of a series of different worksheets, some of which accept data input, and some of which present data summaries or analyses. The names of these sheets and their abbreviations follow:

Project Title sheet ( (Project Title)Default Parameters sheet ( (Default Parameters)Initial Investment Costs sheet ( (Initial Investment)Annual Operating Costs sheet ( (Annual Operating)Scenario Summary sheet ( (Scenario Summary)Tax Deduction Schedule sheet ( (Tax Deduction)Incremental Cash Flow Analysis sheet ( (Cash Flow)Incremental Profitability Analysis sheet ( (Profitability Analysis)

Each of these sheets is described in detail in Section 2 of this Users Guide.

Moving Between SheetsWhen you open P2/FINANCE, you enter the Project Title sheet. To access a different P2/FINANCE sheet click on the tab buttons at the bottom of the screen. Each tab corresponds to one of P2/FINANCEs sheets. For example, to access the Initial Investment Costs sheet, simply click on the tab titled Initial Investment. In some cases the tab for the sheet you want to access will not be visible on the screen. To locate the desired tab, use the tab scrolling arrows at the bottom left of the screen. The inner set of tab scrolling arrows scrolls the tab button bar one at a time; the outer set of tab scrolling arrows brings you immediately to the very beginning or the very end of the tabs button bar.

P2/FINANCE remains in your current scenario (e.g., Base Scenario, Alternative Scenario 1) when you move between sheets. In cases where you move to a sheet that does not have different scenario sections (e.g., Project Title sheet), P2/FINANCE automatically takes you to the top of the sheet.

Moving Between ScenariosWithin a given sheet (e.g., Initial Investment Costs sheet), you can move between scenarios (e.g., Base Scenario and Alternative Scenario 1) by clicking on the relevant scenario button at the top of the screen: The buttons say: Alt1, Alt2, and Base. The Project Title, Default Parameters, and Profitability Analysis sheets apply to all scenarios and therefore no scenario buttons appear on the screen for those sheets. The Cash Flow sheet has two alternatives: a comparison of Base vs Alt 1 and a comparison of Base vs Alt 2. The scenario buttons on this sheet therefore say Alt1 vs Base and Alt2 vs Base. The scenario buttons will always be visible at the top of the computer screen as you scroll through a sheet.

PrintingA Print button will always be visible at the top of the computer screen, even as you scroll down through a sheet. Clicking on this button will bring up a Print Selection Menu that contains brief instructions. Using this menu, you can print any sheet of P2/FINANCE by clicking on the relevant print boxes. The print box for the sheet you are currently working on will already be selected, but you can easily un-select it.

Help FunctionA Help button always appears at the top of the screen, next to the Print button. Clicking on the Help button will bring you immediately to the on-line help screen relevant to the sheet in which you are working. If you are working in a sheet that does not have different scenarios (the Project Title Sheet, the Default Parameters sheet, and the Incremental Profitability Analysis sheet), you can exit the help screen by clicking on the Return to Top button at the top of the screen. If you are using a sheet that does have different scenarios, you can exit the help screen by clicking on any of the scenario buttons at the top of the screen. In either kind of sheet (with or without more than one scenario), you may also exit help by using the tab buttons at the bottom of the screen to select a different sheet.

Calc ButtonA Calc button always appears at the top of the screen next to the Print and Help buttons. P2/FINANCE has a default setting of manual recalculation. When P2/FINANCE is in this manual setting, it will automatically recalculate only before you save, print or exit the file, but not every time you enter new data or make changes to existing data. This means that if you make any changes in the data you have entered or if you enter new data, these changes are not automatically reflected in the various mathematical sums and calculations shown on the screens.

To tell the software to update its calculations, using the data changes you have made, you must click on the Calc button. P2/FINANCE is set this way so that it runs more quickly. If, however, you want to change from manual recalculation to automatic recalculation, click on the Excel Tools menu, choose Options, and then the Calculate folder. Select automatic rather than manual. If you then close the file and re-open it later, P2/FINANCE will return to the default manual setting.

Excel Tips

Although this Guide assumes user familiarity with Excel for Windows, some general tips on Excel operations appear below.

P2/FINANCE rarely requires you to use the Excel menus. Instead, P2/FINANCE contains special on-screen buttons for most of the common commands.

The Excel menus, however, do provide some important additional functions. To open a P2/FINANCE file, click on the File menu and then select Open. To save a file, go to the File menu and then select Save. To close a file, go to File then Close. To quit the software, go to File then Exit. If you have not saved your changes when you Close or Exit, Excel will ask you whether you want to save the file. You can also zoom in or out in any given sheet by clicking on the View menu and then selecting Zoom. This will bring up a self-explanatory zoom menu. P2/FINANCEs default zoom size is set so that the entire width of a sheet (with the exception of the Tax Deduction and Cash Flow sheets) fits onto the screen. If you change the zoom size, you may want to note the default size so that you can return to it easily. P2/FINANCE will not return automatically to the default zoom size if you have saved the zoom changes.

In Excel, the status bar at the very bottom of the screen informs you of P2/FINANCEs current status. When P2/FINANCE is ready for you to enter data or make other changes, a Ready message will appear in the status bar. If P2/FINANCE is working, (e.g., moving between sheets & scenarios or recalculating) the Ready message will disappear, indicating that you must wait to continue your analysis. [note: if you press F9 to calculate (rather than clicking on the calculate button), the status bar will for some reason continue to say ready and allow you to keep entering data; if you do enter new data, however, the recalculation will stop. This is due to a problem in the Excel program. Using the calculate button is therefore recommended.]

If P2/FINANCE is operating in the default manual recalculation setting, the status bar should display calculate any time you make a change to your file. This is a reminder that you need to recalculate to make the various analyses reflect your new inputs. Unfortunately, the calculate warning does not always appear when it should -- again due to a small bug in Excel. This means that you must be particularly careful about remembering to recalculate before using any of the calculated figures.

If you pull down any of the Excel file menus, the status bar will give a brief explanation of whatever function you have highlighted.

Spreadsheet Protection

P2/FINANCE is a protected spreadsheet; cells not requiring user input and cells containing formulas are locked and cannot be modified. Additionally, the file cannot be linked to other files. Protection of this type is necessary to maintain quality control over the program. Protection of P2/FINANCE ensures that you receive a high quality tool.

Computer Specifications

P2/FINANCE was programmed in Excel Version 5.0 for Windows Version 3.1. Other combinations of Windows and Excel have not been tested.

Hardware and Software Specifications

Certain minimum hardware and software specifications must be met to operate P2/FINANCE. In addition to these minimum specifications, we have defined a set of recommended hardware and software specifications that will facilitate your use of P2/FINANCE, but are not absolutely essential for its operation. Table 1 lists both the minimum and recommended hardware specifications.

Table 1. Specifications for Operating P2/FINANCE Version 3.0 in Excel Version 5.0 for Windows

Minimum SpecificationsRecommended SpecificationsComputer Chip386486 or PentiumWindows Version3.113.11Memory (RAM)4 Megabytes8 or more MegabytesDisk Space2 Megabytes2 MegabytesMouse?YesYesColor Monitor?NoYesBeyond these minimum requirements, P2/FINANCE runs appreciably faster with more memory (RAM).

Installation

To install P2/FINANCE Version 3.0 programmed in Excel 5.0 for Windows, load the Installation Disk in your disk drive and type:

[disk drive letter]:\p2fexcel

This action unzips the spreadsheet and copies one file into a c:\p2fEXCEL directory: P2FINAN.XLS. P2FINAN.XLS is an empty template that must be copied for each project analysis.

When you are ready to enter data into the spreadsheet, save the P2FINAN.XLS file under a new name to use for a particular project. Note that the file extension, XLS, may not be changed.

Note: You may reinstall the software at any time to generate a blank spreadsheet with the name P2FINAN.XLS

2. Step by Step Instructions: Entering Data

Project Title Sheet

On the Project Title sheet, enter descriptive information about the project for later reference. At the top of the sheet, enter the date of the analysis. For example, to enter January 25, 1996, type: Date: 1/25/96. Enter a name for the project in the yellow field to the right of the words Project Title.

Note: P2/FINANCE automatically copies the project name and date entered here to the top of other spreadsheet pages.

In the remaining yellow fields, enter your name, the name of your organization, and other information about the analysis. For example, you can enter the analysis assumptions as well as qualitative considerations related to the project in the Comments section.

Accessing Scenarios

The Project Title sheet does not contain different sections for each scenario. Therefore, no scenario buttons appear at the top of the screen.

Printing Scenarios

To print the Project Title sheet, click on the Print button at the top of the screen to access the general Print Selection Menu. From this menu, select the Project Title sheet and then click Okay. If you are working in the Project Title sheet, it will already be selected for you. You can print other sheets by selecting them instead of or in addition to the Project Title sheet.

Accessing Help

To access the on-line help screen for the Project Title sheet, click on the Help button at the top of the screen. This help screen describes the information requested on the Project Title sheet and also provides general information on Total Cost Assessment and financial analysis. To exit the help screen, click on the Return to Top button at the top of the screen. You may also use the tab buttons at the bottom of the screen to select a different sheet.Calculating

To recalculate totals and other analysis results after entering new data, click on the Calc button at the top of the screen. P2/FINANCE has a default setting of manual recalculation. This means that if you make any input changes, they are not automatically reflected in the various totals and analyses. To incorporate the changes, you must click on the Calc button. To learn how to change the default setting or to read more about the Calculate function, see sections on Calculate Button and Excel Tips on page 1-8.Default Parameters Sheet

In addition to cost data, P2/FINANCE requires general information about your firm and the proposed investment in order to calculate profitability. This additional information, referred to as the financial parameters for the analysis, range from the Depreciation Method used for an investment, to Income Tax Rates for the firm, to the timing of Annual Operating Costs. Although you can tailor many of these parameters to individual cost categories, P2/FINANCE allows you to define a set of Default Parameters to use as a starting point.

On the left, the Default Parameters sheet lists Global Parameters, those parameters that apply to all scenarios within the project. On the right, the Default Parameters sheet lists Scenario Parameters. You can define defaults for:

Global ParametersApplied ....Inflation RateautomaticallyDiscount RateautomaticallyIncome Tax Rates (Local, State, Federal)automaticallyDepreciation MethodApply Defaults buttonDepreciation PeriodApply Defaults button

Scenario ParametersName automaticallydefault Investment YearApply Defaults buttondefault LifetimeApply Defaults buttondefault Start YearApply Defaults buttondefault End YearApply Defaults button

To enter Default Parameters, position your cursor on the appropriate yellow field and enter your selections. P2/FINANCE applies some of these parametersnamely, Inflation Rate, Discount Rate, and Income Tax Ratesto the analysis in the same way as other data entries are applied, i.e., as soon as you type in the desired value and then hit the Calc button. However, for those parameters that can be tailored for individual cost categoriesdefault Depreciation Method, default Depreciation Period, default Investment Year, and default LifetimeP2/FINANCE implements them only after you click on the Apply Defaults button visible on the sheet. For these parameters, selecting Apply Defaults deletes all prior tailoring of these parameters for individual cost categories. For example, suppose you change the default Investment Year for Alternative Scenario 1 to Year 2. If you had already tailored some Initial Investment Cost categories to Year 3, clicking the Apply Defaults button reverts the Investment Year for all cost categories in the Alternative Scenario 1 to Year 2. As this command has the potential to delete previous work, P2/FINANCE asks you twice if you are sure that you want to Apply Defaults. After activating Apply Defaults, you can tailor the Default Parameters for each cost category in the Initial Investment Costs and Annual Operating Costs sheets.

Note: Enter percentages as decimals or with a percent sign (%). For example, to define an inflation rate of 3.5%, type: .035 or 3.5%.

P2/FINANCE allows you to define financial parameters at two levels in the software: 1) on the Default Parameters sheet and 2) for individual cost categories on the Initial Investment Costs and Annual Operating Costs sheets. Table 2 displays the levels at which each parameter can be defined.

Table 2. Levels of Parameter Definition

Default Parameters SheetInitial InvestmentCost CategoryAnnual Operating Cost CategoryInflation Rate/EscalationXXDiscount RateXIncome Tax RatesXDepreciation MethodXX Depreciation PeriodXX Investment YearXXLifetimeXXStart Year XEnd YearXTime Value of Money

Before describing in detail each financial parameter, it is useful to discuss one key concept in project financial analysisthe time value of money.

Money has two important characteristics: dollar value and time value. Most people are familiar with dollar value, preferring to have $1000 instead of $50. For many people, however, the time value of money remains confusing. The time value of money recognizes that the timing of cash flows is relevant to the profitability of a project. For example, a $200 revenue received in Year 1 is worth more than $200 received in Year 10. The time value of money serves as the basis for the Inflation Rate, Escalation and the Discount Rate.

Inflation and escalation both reflect the fact that money loses value over time as prices increase. Discounting accounts for the opportunity cost of selecting one project over other investment opportunities. The Inflation Rate, Escalation Rate, and Discount Rate are all described in more detail in the following section on Global Parameters.

Global Parameters

On the left of the Default Parameters sheet, P2/FINANCE lists Default Parameters that are defined for the entire project(Global Parameters. You can modify some of these Global Parameters for individual cost categories. A description of each follows.

Inflation Rate

Inflation reflects the fact that prices rise over time (e.g., one sheet of printing substrate costs $1 in Year 1, whereas in Year 2 a sheet of the same substrate costs $1.05). P2/FINANCE allows you to choose between two approaches to financial analysis. In the first (real) approach, you do not include an Inflation Rate in the analysis and you apply a real Discount Rate that does not incorporate inflation. In the second (nominal) approach, you include an Inflation Rate in the analysis and apply a nominal Discount Rate that incorporates inflation. You can choose either way for your analysis, but make sure that the Discount Rate you choose corresponds to the inflation approach you have selected.

P2/FINANCE allows you to define a global Inflation Rate on the Default Parameters sheet. Simply enter a percentage in the data entry field. P2/FINANCE then applies that percentage to both the Annual Operating Costs and Initial Investment Costs over time in all scenarios. Applying a 4.5% Inflation Rate to an Annual Operating Cost of $100 inflates that cost to $104.50 in Year 1, $109.20 in Year 2, $114.12 in Year 3, $119.25 in Year 4, and so on.

In addition to this global Inflation Rate, P2/FINANCE allows you to assign an Escalation Rate to Annual Operating Cost categories. Escalation, defined as a percentage, represents cost increases above the Inflation Rate. For example, waste disposal costs often rise at a rate higher than average inflation. If you predict that inflation will be 5%, but that waste disposal prices will increase at an annual rate of 7%, then the Escalation Rate for waste disposal costs is equal to 2%, i.e., the difference between the total increase in prices and the Inflation Rate. While the global Inflation Rate is defined on the Default Parameters sheet, Escalation is defined on the Annual Operating Costs sheet for individual cost categories.

Note: Escalation can be a negative percentage, indicating that for a particular cost category, you expect costs to rise at a rate lower than the global Inflation Rate.

Discount Rate

The practice of discounting is a way of accounting for a second aspect of the time value of money. When a firm invests its money in the purchase of a piece of equipment now, at Year zero, the firm expects to see a financial return on this investment over a certain period of time, say 3-5 years or even longer. For example, if a printer buys a new printing press, the firm expects to see increased sales revenues via the new production line. If the printer instead buys a solvent distillation system, the firm expects to see reduced raw material purchase costs and reduced waste disposal costs.

The practice of discounting acknowledges that there are opportunity costs to using money. For example, when a printer chooses to invest in a solvent distillation system, the firm foregoes the opportunity to increase production capacity by purchasing a new press with that money. A firm usually has multiple investment opportunities, each with a different financial benefit for the firm. In order to choose between the available investment opportunities, the firm should determine the rate of financial return that it expects from a typical investment, and compare the financial benefits of the specific projects at hand to that expected rate of return and also to each other.

The expected rate of return for a typical investment is called the firms Discount Rate. The Discount Rate, expressed as a percentage, is used to discount dollars received by the firm in future years as a result of an investment in Year zero, i.e., the Discount Rate is used to account for the time value of money as money that a firm invests now brings returns in the future.

The Discount Rate of a firm should approximate the average financial return expected on a typical investment made by that firm. As such, the chosen Discount Rate should, at minimum, ensure that the firm recovers its cost of capital, i.e., the financial return from an investment should at least cover the cost of the money required for the investment. For example, the money used for an equipment purchase might come from equity capital (e.g., stock funds, on which the firm will have to pay dividends) or it might come from debt capital (e.g., a loan from a bank, on which the firm will have to pay interest). The financial return on an investment should at least recover the cost of these investment funds.

Instead of detailing the source and cost of available investment capital for every individual investment project, firms typically use a weighted average cost of capital for the firm as a whole, a measure that characterizes the balance between the firms use of equity capital and debt capital (including the tax effects of using debt capital) over a longer period of time. This weighted average cost of capital is often used as the firms Discount Rate. The use of the weighted average cost of capital as the firms Discount Rate for the financial analysis of investment opportunities allows the firm to select the investment opportunities that are profitable enough, at minimum, to cover the firms average money costs, and hopefully reap a profit above that minimum.

The value of your companys Discount Rate also depends on the approach to financial analysis you have chosen: the real approach vs. the nominal approach. As discussed previously, if you have not included an Inflation Rate in your financial analysis, then you should not incorporate inflation in your Discount Rate, i.e., you should use a real Discount Rate. Alternatively, if you have included an Inflation Rate in your financial analysis, make sure that your Discount Rate also incorporates inflation, i.e., use a nominal Discount Rate. The relationship between the two types of Discount Rate is shown below:

N = R + I + (R * I)where:N = Nominal Discount RateR = Real Discount RateI = Inflation Rate

The typical real Discount Rate for a stable business ranges from 8% to 20%. Because a Discount Rate is based on your cost of capital, it incorporates financing parameters (e.g., interest and principal) in the analysis, avoiding the need to directly include them in the cash flow calculations.

The Discount Rate is one way to measure the risk associated with an investment. If the risk associated with a proposed investment differs from the risk of investments generally made by the firm, the Discount Rate should be adjusted accordingly. Increase the Discount Rate for those investments that are riskier than average; decrease the Discount Rate for those investments that are less risky than average. The amount to vary the Discount Rate to account for risk is often a product of intuition rather than quantitative analysis.

Define a Discount Rate for the project on the Default Parameters sheet. P2/FINANCE applies this value to the Incremental Cash Flow Analysis (i.e., the comparison of each Alternative Scenario with the Base Scenario) and, thus, the Discount Rate is the same for all scenarios within a project. P2/FINANCE uses the Discount Rate to calculate the Discounted Cash Flow on the Incremental Cash Flow Analysis sheet. The Discounted Cash Flow is then used to calculate Net Present Value and Discounted Payback on the Incremental Profitability Analysis sheet.

Income Tax Rates

Taxes can play a major role in the profitability of any project and are calculated at a company-wide level. Define the Local, State, and Federal Income Tax Rates for the project by entering the appropriate percentages in the yellow fields on the Default Parameters sheet. Because you can deduct your state and local taxes from your federal taxable income, P2/FINANCE calculates an Aggregate Income Tax Rate using the formula:

A = [F * (1 - S - L)] + S + Lwhere: A =Aggregate Income Tax RateF = Federal Income Tax RateS =State Income Tax RateL =Local Income Tax Rate

P2/FINANCE applies this aggregate value to the Incremental Cash Flow Analysis (i.e., the comparison of each Alternative Scenario with the Base Scenario) and, thus, the Aggregate Income Tax Rate is the same for all scenarios within a project.

When defining your Income Tax Rates, consider whether the proposed investment would change your current tax rates. For example, if the investment would result in an increase in production with a corresponding increase in revenues, the firm might jump to a higher tax bracket.

Note: P2/FINANCE does not explicitly include capital gains taxation or investment tax credits. These tax impacts, where applicable, can be entered into the software as Annual Operating Costs/savings.

Depreciation

The Internal Revenue Service (IRS) permits firms to shield some of their taxable income through tax depreciation of the Initial Investment Costs. Depreciation is the gradual deduction of the equipment costs over time. IRS specifies the method and time period to calculate the depreciation for a piece of equipment. The remaining value of the equipment in each year (Initial Investment Cost - cumulative depreciation) is the Remaining Book Value of the equipment.

The calculation of depreciation does not take into account the time value of money. For example, suppose you purchase a new dry cleaning machine for $35,000 and depreciate it over 7 years. Using the standard IRS Depreciation Method(double declining balance switching to straight line with a half-year convention (DDB)(and applying a Discount Rate of 10% (assuming 0% Inflation Rate) would over time generate a tax shield of $26,075 in Year 0 dollars. Because depreciation does not account for the time value of money, firms benefit from depreciating equipment as quickly as possible. The IRS defines two accelerated schedules for this purpose.

Although the IRS requires you to depreciate equipment costs over time, firms may directly expense (i.e., fully deduct from taxes) some non-equipment costs (e.g., Site Preparation, Start-up Training) associated with the initial investment. You cannot depreciate or expense Working Capital Costs (e.g., inventory expenses) because they do not represent real cash expenses; these costs are recovered at the end of the Lifetime of the project. (For further information on Working Capital, see pages 2-17 and 2-18). P2/FINANCE allows you to select Depreciation Methods for both Expensed Initial Investment Costs and Working Capital Initial Investment Costs.

Note: This Guide provides general information on how to estimate the depreciation impact of a potential project. However, when filing your taxes, check with an accountant or the IRS to ensure the use of an appropriate depreciation method and period.

On the Default Parameters sheet, select a default Depreciation Method and default Depreciation Period to use as a starting point for the analysis. To define a default Depreciation Method, enter one of the depreciation codes listed on the Default Parameters sheet and below. Similarly, to define the number of years over which the equipment is depreciated, enter a number in the yellow field labeled default Depreciation Period.

P2/FINANCE allows you to define depreciation parameters at two different levels in the software:

On the Default Parameters sheet as a Global Parameter for the project; and On the Initial Investment Costs sheet for each cost category to override the default Depreciation Method and default Depreciation Period for costs in that particular category.

Depreciation Methods

P2/FINANCE allows the user to select a Depreciation Method for each Initial Investment Cost category from several choices:

SL (Straight Line) - The depreciation amount is constant over the Depreciation Period.DDB (200% Declining Balance switching to Straight Line) - An accelerated schedule in which the equipment is depreciated at a higher rate in the beginning of its Lifetime.1.5DB (150% Declining Balance switching to Straight Line) - Another accelerated schedule at a lower rate.P2/FINANCE automatically applies a half-year convention to all depreciation calculations (i.e., SL, DDB, 1.5DB). Not knowing when in a year the equipment is purchased (or placed into service), this IRS convention allows firms to deduct only a half years value of depreciation in the first year the equipment was placed into service. To recapture the lost half year of depreciation, the IRS extends the Depreciation Period by a half year. For example, P2/FINANCE depreciates equipment with a Depreciation Period of five years over six years with a half years depreciation taken in the first and sixth years.

If depreciation is not relevant to a particular cost category, P2/FINANCE also allows the user to select from two non-Depreciation Methods:

EXP (Expensed (tax deductible in the first year)) - These non-equipment costs are fully deducted from the cash flow as operating expenses in the year following the Investment Year.WC (Working Capital (not tax deductible)) - Working Capital Costs are neither depreciated or expensed. Working Capital Costs are returned to the cash flow at the end of the projects Lifetime. Marking a category as WC informs P2/FINANCE that these costs need to be added back to the cash flow at the end of the cost categorys Lifetime.

DDB is the most commonly used Depreciation Method because it allows the firm to deduct a higher percentage of the Initial Investment Cost early in the Depreciation Period.

Depreciation Period

The IRS has developed regulations on Depreciation Periods allowed for different types of property. In general, the following Depreciation Periods listed in Table 3 apply.

Table 3. Depreciation Period by Property Type

PropertyPeriodSmall tools3 yearsAutomobiles, office machinery, computers, and property used for research and experimentation5 yearsOffice equipment and most manufacturing equipment7 yearsMachinery and equipment used for petroleum distilling and refining, and for milling grain10 yearsSewage treatment plants, telephone and electrical distribution facilities, and land improvements15 yearsService stations and other property with a useful life of less than 27.5 years20 yearsResidential rental property27.5 yearsBuildings and real estate placed into service before 5/13/1993.31.5 yearsBuildings and real estate placed into service after 5/12/1993.39 yearsScenario Parameters

Other Default Parameters are defined for each individual scenario. On the Default Parameters sheet, you define the Name, the default Investment Year, and the default Lifetime for the scenario. P2/FINANCE automatically defines the default Start Year and default End Year for the scenario.

Name

Define a Name for the scenario here. P2/FINANCE then copies this Name to all sheets for the scenario.

Investment Year

P2/FINANCE allows you to specify a default Investment Year for each scenario. Simply enter a number in the yellow field for each scenario. You later can tailor the Investment Year for individual Initial Investment Cost categories. Year 0 is the most common Investment Year. It is possible to analyze multi-year investments for which you would purchase some equipment at the end of Year 0 and then more equipment at the end of Year 2. For such an investment, enter 0 as the default Investment Year. Then, on the Initial Investment Costs sheet, create two equipment cost categories(Purchased Equipment: Year 0 and Purchased Equipment: Year 2. Specify an Investment Year of 2 for the latter equipment cost category.

From the default Investment Year, P2/FINANCE identifies the default Start Year for the Annual Operating Costs as the following year. This relationship between Initial Investment Costs and Annual Operating Costs stems from financial analysis convention, which assumes that investments occur at the end of the year (e.g., December 31, 1995) and that depreciation and other tax impacts as well as operating costs do not start until the beginning of the following year (e.g., January 1, 1996). For example, if you purchased a paint spray booth in year 0, you would not begin accounting for Annual Operating Costs, revenues, and tax implications (such as depreciation) until year 1 when you would have a full year of operation. This convention ensures that each year (after Year 0) reflects a full year of costs due to the investment.

Lifetime

P2/FINANCE allows you to define a default Lifetime for each scenario. Simply enter a Lifetime value in the labeled yellow field for each scenario. Lifetime affects the Initial Investment Costs in two ways. First, it defines when the equipment is salvaged (i.e., sold) so that P2/FINANCE can include the revenue from the sale as well as related taxes in the analysis. Second, Lifetime defines when Working Capital is no longer needed for the project and is available for other uses. The return of Working Capital appears as a revenue in the analysis because the investment can, in essence, sell the Working Capital to another investment. You later can tailor the default Lifetime for individual Initial Investment Cost categories.

In addition to these two uses, P2/FINANCE uses the default Lifetime to define the default End Year for the Annual Operating Costs. You later can tailor this default End Year value for individual Annual Operating Cost categories.

Start Year

P2/FINANCE automatically defines the default Start Year for the Annual Operating Costs as the year after the default Investment Year. According to financial analysis convention, Initial Investment Costs occur at the end of the year and Annual Operating Costs begin in the following year. For example, if you define Year 3 as the default Investment Year, P2/FINANCE automatically defines Year 4 as the default Start Year for Annual Operating Costs. You later can modify this default Start Year on the Annual Operating Costs sheet for each cost category.

End Year

P2/FINANCE automatically defines the default End Year for the Annual Operating Costs by adding the Lifetime to the Investment Year. For example, if you define Year 2 as the default Investment Year and 10 as the Lifetime of the investment, P2/FINANCE automatically defines Year 12 as the default End Year for the Annual Operating Costs. You later can modify this default End Year on the Annual Operating Costs sheet for each cost category.

Accessing Scenarios

The Default Parameters sheet does not contain different sections for each scenario. Therefore, no scenario buttons appear at the top of the screen.

Printing Scenarios

To print the Default Parameters sheet, click on the Print button at the top of the screen to access the general Print Selection Menu. From this menu, select the Default Parameters sheet and then click Okay. If you are working in the Default Parameters sheet, it will already be selected for you. You can print other sheets by selecting them instead of or in addition to the Default Parameters sheet.

Accessing Help

To access the on-line help screen for the Default Parameters sheet, click on the Help button at the top of the screen. This help screen defines each of the financial parameters listed on the Default Parameters sheet. To exit the help screen, click on the Return to Top button at the top of the screen. You may also use the tab buttons at the bottom of the screen to select a different sheet.

Calculating

To recalculate after entering new data, click on the Calc button at the top of the screen. P2/FINANCE has a default setting of manual recalculation. This means that if you make any input changes, they are not automatically reflected in the various totals and analyses. To incorporate the changes, you must click on the Calc button. To learn how to change the default setting or to read more about the Calculate function, see sections on Calculate Button and Excel Tips on page 1-8.Initial Investment Costs Sheet

Once you define both the Global and Scenario Parameters for the project on the Default Parameters sheet, you can begin entering cost data related to the initial investment. In many cases, only Alternative Scenarios, i.e., changes to your current process, require an initial investment. For these cases, enter the Initial Investment Costs under an Alternative Scenario. In cases where the Base Scenario, or business-as-usual activities, also requires an investment, enter Initial Investment Costs in both Alternative and Base Scenarios. For example, a dry cleaning shop may face a regulation that requires it to add pollution control devices to their dry cleaning machines to meet air emission limits. The shop, however, considers transferring some of its capacity from dry cleaning to wet cleaning, enabling it to meet air emission limits without pollution control devices. To assess the profitability of such an operating change, the shop would enter the Initial Investment Costs needed to transfer some of its capacity to wet cleaning in Alternative Scenario 1 and input the Initial Investment Costs related to the pollution control devices in the Base Scenario. P2/FINANCE allows you to define Initial Investment Costs for any scenario(Alternative or Base.

First, identify the costs required to start up the investment by developing a cost inventory related to the initial investment. Total Cost Assessment (TCA) expands the definition of Initial Investment Costs to include a wider range of costs than typically considered in conventional financial methods. An example of this broader view is P2/FINANCEs use of the term Initial Investment Costs as a replacement for capital costs. The term capital cost generally refers only to equipment and other direct material cost items, i.e., those that are depreciable, and thus omits indirect and non-depreciable costs. Indirect costs related to the initial investment, such as labor associated with planning, engineering, and training, can impact the profitability of the investment and thus merit inclusion in the analysis. Keep these other Initial Investment Costs in mind and, where feasible, include them in your analysis to enhance its accuracy.

Financial analysis estimates the profitability of an investment and as an estimate, is not sensitive to the precise timing of Initial Investment Costs and Annual Operating Costs within a calendar year. Instead, financial analysis convention assumes that Initial Investment Costs occur at the end of the year (e.g., December 31, 1995) and that depreciation and other tax impacts as well as Annual Operating Costs do not start until the beginning of the following year (e.g., January 1, 1996). For example, if you purchase a rotary tiller at the end of Year 4, you would not begin accounting for Annual Operating Costs, revenues, and tax implications (e.g., depreciation) until Year 5 when you would have a full year of operation. This convention ensures that each year (after Year 0) reflects a full year of cost impacts due to the investment. As a result of this timing convention, the default Start Year for Annual Operating Costs always is the year following the default Investment Year.

The first step on the Initial Investment Costs sheet is to define the relevant cost categories for the project. Cost categories serve two purposes in P2/FINANCE. First, they are used in the Scenario Summary, Tax Deduction Schedule, and Incremental Cash Flow Analysis sheets for tracking and organizing cost data. Second, cost categories are used to indicate a set of financial parameters (e.g., Depreciation Method) that differ from the Default Parameters. You can use the cost categories to organize these modifications. For example, an auto manufacturer depreciates most equipment over seven years with the exception of small and special tools that depreciate over three years. To accommodate both Depreciation Periods in a single scenario, define two purchased equipment categories(one with a 7 year Depreciation Period, titled Purchased Equipment - 7 Years and the other with a 3 year Depreciation Period, titled Purchased Equipment - 3 Years.

Within a project, the names of Initial Investment Cost categories must remain consistent from scenario to scenario because P2/FINANCE tracks costs in the Scenario Summary, Tax Deduction Schedule, and Incremental Cash Flow Analysis sheets by cost category. Therefore, you can modify the names of cost categories only in Alternative Scenario 1; P2/FINANCE automatically adjusts the names of cost categories in other scenarios to reflect changes made in Alternative Scenario 1.

Having defined the cost categories, enter the relevant cost item names within each cost category. Because the cost items are not used for reporting purposes by the program, they can vary from scenario to scenario. P2/FINANCE inflates Initial Investment Costs that do not occur in Year 0, using the global Inflation Rate and the Investment Year defined for that cost category.

Note: For each cost item, always enter the Initial Investment Cost in Year 0 dollars regardless of the year in which the cost occurs. In P2/FINANCE, enter costs as positive values and revenues as negative values. The only exception to this sign convention is Salvage Value, a revenue that is entered in the Salvage Value field as a positive value.

P2/FINANCE monitors the parameters defined for each cost category and gives an error message (P2F #ERR) in the TOTAL field for a cost category when the defined combination of parameters is not allowed. For example, the choice of DDB as the Depreciation Method with a Depreciation Period of 0 yields P2F #ERR. Several rules govern parameters defined at the category level.

With a Depreciation Method of DDB, 1.5DB, or SL, the Depreciation Period must be greater than 0.The Depreciation Period can never be less than 0 or text.The Depreciation Method must be one of the five P2/FINANCE codes.The Investment Year can never be less than 0 or text.The Investment Year can never by greater than 15.The Lifetime can never be less than 1 or text.

Salvage Value

If your investment has resale potential at the end of its Lifetime, include its Salvage Value (in Year 0 dollars) on the Initial Investment Costs sheet. In the cost category where you have defined the equipment cost, enter its resale value in the yellow Salvage Value field as a positive value.

Note: Salvage Value is the only revenue you enter as a positive value in P2/FINANCE.

P2/FINANCE inflates the Salvage Value and includes it on the Incremental Cash Flow Analysis sheet as a revenue in the Lifetime year (i.e., Investment Year + Lifetime). For example, you purchase a printing press in Year 0 for $500,000 and believe that you can sell it at the end of its 10 year Lifetime for $50,000 (in Year 0 dollars), assuming an annual Inflation Rate of 5%. In Year 10, P2/FINANCE inflates the Salvage Value to $81,445 and includes this value as a revenue related to the investment.

In addition to its revenue-generating potential, Salvage Value also impacts the taxes related to an investment. Because IRS depreciation equations do not account for Salvage Value, any revenue received from the resale of fully depreciated equipment is taxable. If the equipment is sold before it has been fully depreciated, the Taxable Gain (Loss) on Salvaged Equipment depends on the difference between the inflated Salvage Value of the equipment and its Remaining Book Value at the end of its Lifetime. If the salvaged equipment is sold for less than its Book Value (i.e., Salvage Value < Book Value), you can reduce your taxable income by the difference between the two values. Similarly, if the salvaged equipment is sold for more than its Book Value (i.e., Salvage Value > Book Value), you have to pay taxes on the difference. This difference (i.e., Salvage Value - Book Value) is included in the Tax Calculation on both the Tax Deduction Schedule and Incremental Cash Flow Analysis sheets. Because it is unlikely that the Salvage Value of a piece of equipment would exceed its original purchase price, P2/FINANCE does not consider capital gains taxation.

Tailoring the Financial Parameters

For each Initial Investment Cost category, you can change the following Default Parameters to more accurately reflect the profitability of an investment: Investment Year, Lifetime, default Depreciation Method, and default Depreciation Period. Organize cost items that require the same financial parameters into corresponding cost categories. For example, you are evaluating a multi-year investment in which the majority of Initial Investment Costs occur in Year 0 with the exception of some related equipment costs that will not occur until Year 2. To evaluate such an investment, separate the costs first by Investment Year. Then within each of these sets, separate all of the costs by Depreciation Method. Continue this approach with the Lifetime and Depreciation Period parameters until you have groups of cost items that share the same financial parameters. P2/FINANCE only uses Lifetime to determine when to cash in Salvage Value and Working Capital. If neither of these are relevant for the cost items within a particular cost category, you do not have to make sure that all cost items share the same Lifetime.

One example of a situation in which you would want to tailor the Default Parameters for an individual cost category is when you have Initial Investment Costs that can be directly expensed. Some Initial Investment Costs do not have to be depreciated, such as Site Preparation and Start-up Training. P2/FINANCE allows you to select a Depreciation Method, EXP, for Initial Investment Costs that should be fully deducted from the cash flow as operating expenses. Because P2/FINANCE adopts the financial analysis convention that investments occur at the end of the year (e.g., December 31), it does not expense these Initial Investment Costs until the year following the Investment Year. For example, if you incur an expensed cost in Year 2, P2/FINANCE does not expense it for tax purposes until Year 3. When you select the EXP method, P2/FINANCE ignores Salvage Value entries because only equipment can be salvaged. P2/FINANCE also ignores the Depreciation Period when you select EXP.

Working Capital

You also may need to tailor the Default Parameters for Initial Investment Cost categories that denote Working Capital. When beginning a new process, developing a new product, or increasing production capacity, your firm may need to temporarily set aside funds for project start-up. These temporary investments can be recovered by the company at the end of the Projects Lifetime. During the project, though, these investments are tied up in the project and are not available for other investments; however, the time value of money must be accounted for through the application of an Inflation Rate and a Discount Rate. An investment in inventories is a common Working Capital Initial Investment Cost that is relevant for the financial analysis of a project. For example, it may be necessary to purchase $3000 worth of inventory in substrates and inks when you bring a new press on-line at the end of Year 0, knowing that you can recover these costs by selling the inventory at the end of the projects Lifetime. In this example, you would incur a cost at the end of Year 0 (included on the Initial Investment Costs sheet) and see a revenue (i.e., a release of the tied-up funds) at the end of the projects Lifetime included as Recovery of Working Capital on the Incremental Cash Flow Analysis sheet. Because Working Capital is recovered by the company, it cannot be depreciated.

Working Capital on a facility-wide basis includes the amount of capital tied up in accounts receivable, accounts payable, taxes payable, inventory and cash requirements. For a particular project, Working Capital can be estimated as a percentage of the expected change in revenues due to the project. If the companys operations are stable and the proposed project is not expected to have a significant impact on the companys revenues, these other Working Capital impacts are typically minimal and can be omitted from the analysis. If developing an inventory, on the other hand, is directly linked to the proposed project, its costs should be included in the analysis as Working Capital.

To include a Working Capital Initial Investment Cost in a scenario, enter WC as the Depreciation Method for an Initial Investment Cost category. The WC code tells P2/FINANCE how to treat the Initial Investment Costs within that category. P2/FINANCE does not depreciate or expense WC cost categories and it returns the inflated value of the Working Capital to the cash flow as a revenue in the Lifetime year (i.e., Investment Year + Lifetime) for that category. If you select WC as the Depreciation Method for an Initial Investment Cost category, P2/FINANCE ignores Salvage Value and the Depreciation Period.

Accessing Scenarios

The Initial Investment Costs sheet contains three sections, one for each scenario(Alternative 1, Alternative 2, and Base. To move between scenarios, click on the relevant scenario button at the top of the screen. The buttons say: Alt1, Alt2, and Base.

The scenario buttons allow you to move between scenarios, differing from the tab buttons at the bottom of the screen, which allow you to move between sheets within a scenario.

Printing Scenarios

To print a section of the Initial Investment Costs sheet, click on the Print button at the top of the screen to access the general Print Selection Menu. From this menu, select the Initial Investment Costs sheet and the scenario(s) you want and then click Okay. If you are working in the Initial Investment Costs sheet, it will already be selected for you. You can print other sheets by selecting them instead of or in addition to the Initial Investment Costs sheet.

Accessing Help

To access the on-line help screen for the Initial Investment Costs sheet, click on the Help button at the top of the screen. This help screen defines each of the components of the Initial Investment Costs sheet. To exit the help screen, click on one of the scenario buttons at the top of the screen. You may also use the tab buttons at the bottom of the screen to select a different sheet.

Calculating

To recalculate after entering new data, click on the Calc button at the top of the screen. P2/FINANCE has a default setting of manual recalculation. This means that if you make any input changes, they are not automatically reflected in the various totals and analyses. To incorporate the changes, you must click on the Calc button. To learn how to change the default setting or to read more about the Calculate function, see sections on Calculate Button and Excel Tips on page 1-8.Annual Operating Costs Sheet

In a financial analysis, the Initial Investment Costs are weighed against the expected Annual Operating Costs (i.e., the annual operating revenues or cost savings) associated with the investment. Enter the Annual Operating Costs associated with the investment in the Alternative Scenario and costs for business-as-usual operations in the Base Scenario. In general, only include in the financial analysis those costs that are likely to change as a result of the investment. For example, if you do not expect labor costs to change with the purchase of a new paint gun cleaner, then omit the cost of labor from the analysis.

Financial analysis convention assumes that all Initial Investment Costs occur at the end of the year (e.g., December 31, 1995) and that depreciation and operating costs do not start until the beginning of the following year (e.g., January 1, 1996). Thus, P2/FINANCE automatically defines the default Start Year for Annual Operating Costs as the year following the default Investment Year. You can modify this Start Year for individual Annual Operating Cost categories as needed.

As on the Initial Investment Costs sheet, the first step on the Annual Operating Costs sheet is to define the relevant cost categories for the project. Cost categories serve two purposes in P2/FINANCE. First, they are used on the Scenario Summary, Tax Deduction Schedule, and Incremental Cash Flow Analysis sheets for tracking and organizing cost data. Second, cost categories are used to indicate a set of financial parameters that differ from the Default Parameters. You can use the cost categories to organize these modifications. The financial parameters that you can modify for Annual Operating Cost categories include Start Year, End Year, and Escalation Rate.

Within a project, the names of the cost categories must remain consistent from scenario to scenario because P2/FINANCE tracks costs on the Scenario Summary, Tax Deduction Schedule, and Incremental Cash Flow Analysis sheets by cost category. Therefore, you can later modify the names of cost categories only in Alternative Scenario 1; P2/FINANCE automatically adjusts the names of cost categories in other scenarios to reflect changes made in Alternative Scenario 1.

After defining the cost categories, enter the relevant cost item names within each cost category. Because the cost item names are not used for reporting purposes, they can vary from scenario to scenario. P2/FINANCE inflates the Annual Operating Costs, using the global Inflation Rate and any Escalation Rate defined for the cost category.

Note: For each cost item, always enter the cost in Year 0 dollars regardless of the year in which the cost occurs. In P2/FINANCE, enter costs as positive values and revenues as negative values.

P2FINANCE monitors the parameters defined for each cost category and gives an error message (P2F #ERR) in the TOTAL field for a cost category when the defined combination of parameters is not allowed. Several rules govern parameters defined at the category level.

Text may not be entered into any of the parameter fields.Start Year and End Year must be greater than 0.Start Year must never be greater than 15.Start Year must never be greater than the End Year.

Escalation Rate

Because the global Inflation Rate represents an average increase in prices for all goods, it does not always capture the expected change in costs over time for particular cost items. P2/FINANCE allows you to apply an additional Escalation Rate to an Annual Operating Cost category. Costs within a cost category are first inflated using the global Inflation Rate and then escalated using the Escalation Rate specific to the cost category. Therefore, the Escalation Rate for a specific category and the global Inflation Rate are additive. For example, if you expect Waste Disposal costs to rise by 5% each year and have set the global Inflation Rate at 3.5%, set the Waste Disposal Escalation Rate to 1.5%. Enter an Escalation Rate in the yellow Escalation Rate field below the cost category name as a decimal number. To enter an Escalation Rate of 5%, type 0.05 or 5%.

Note: P2/FINANCE allows you to define both negative and positive Escalation Rates.

Tailoring the Financial Parameters

For each Annual Operating Cost category, you can change the following Default Parameters to more accurately reflect the profitability of an investment: Start Year, End Year, and Escalation. Organize cost items that require the same financial parameters into cost categories. For example, suppose you are considering a multi-year investment where some Annual Operating Costs occur from Year 1 to Year 5, while another set of Annual Operating Costs occur from Year 6 to Year 10. To organize the costs by financial parameters they share, separate the costs first by the years over which they will occur (i.e., Year 1 to 5 and Year 6 to 10). Then, within each of these sets, organize the costs by Escalation Rate until each group of cost items shares the same financial parameters. The ability to tailor the financial parameters allows you to include Annual Operating Costs that do not occur on an annual basis. For example, suppose you want to include a liability cost of $50,000 (in Year 0 $) in Year 6 in the Base Scenario. Create a Annual Operating Cost category titled Liability, enter $50,000, and define the Start Year as 6 and the End Year as 6.

Accessing Other Scenarios

The Annual Operating Costs sheet contains three sections, one for each scenario(Alternative 1, Alternative 2, and Base. To move between scenarios, click on the relevant scenario button at the top of the screen. The buttons say: Alt1, Alt2, and Base.

The scenario buttons allow you to move between scenarios, differing from the tab buttons at the bottom of the screen, which allow you to move between sheets within a scenario.

Printing Scenarios

To print a section of the Annual Operating Costs sheet, click on the Print button at the top of the screen to access the general Print Selection Menu. From this menu, select the Annual Operating Costs sheet and the scenario(s) you want and then click Okay. If you are working in the Annual Operating Costs sheet, it will already be selected for you. You can print other sheets by selecting them instead of or in addition to the Annual Operating Costs sheet.

Accessing Help

To access the on-line help screen for the Annual Operating Costs sheet, click on the Help button at the top of the screen. The help screen defines each of the components of the Annual Operating Costs sheet. To exit the help screen, click on the Return to Top button at the top of the screen. You may also use the tab buttons at the bottom of the screen to select a different sheet.

Calculating

To recalculate after entering new data, click on the Calc button at the top of the screen. P2/FINANCE has a default setting of manual recalculation. This means that if you make any input changes, they are not automatically reflected in the various totals and analyses. To incorporate the changes, you must click on the Calc button. To learn how to change the default setting or to read more about the Calculate function, see sections on Calculate Button and Excel Tips on page 1-8.3. Calculating the Bottom Line: Generating ReportsAfter defining all of the elements of your scenario(s) (i.e., financial parameters and cost data), you can generate four types of reports that are detailed below.

P2/FINANCE provides a Scenario Summary with information on the cost data and parameters that you entered for the scenario. It does not include any calculations and can be used as a way to check data entry accuracy.

P2/FINANCE provides a Tax Deduction Schedule that details depreciation calculations along with other tax deductions that are incorporated into the Incremental Cash Flow Analysis.P2/FINANCE provides an Incremental Cash Flow Analysis that compares an Alternative Scenario to the Base Scenario. It incorporates inflation, depreciation, escalation, taxes, and discounting. This report contains a Tax Calculation and a Cash Flow Calculation, the results of which P2/FINANCE uses to calculate the financial indicators listed on the Incremental Profitability Analysis sheet.

P2/FINANCE provides an Incremental Profitability Analysis that includes three financial indicators: Net Present Value, Internal Rate of Return, and Discounted Payback.

Scenario Summary Report

The Scenario Summary depicts the scenario as it was defined by the user without performing any of the calculations or inflating the values. It lists the parameters defined at the cost category level as well as the Default Parameters for the scenario. A Scenario Summary exists for each scenario(Alternative 1, Alternative 2, and Base.

P2/FINANCE lists the name of the scenario in the top left corner and the Date at the middle top. Each Scenario Summary Report contains four sections:

Initial Investment CostsAnnual Operating CostsGlobal ParametersScenario Parameters

The Initial Investment Costs section of the Report lists information entered on the Initial Investment Costs sheet for the scenario. The names of the Initial Investment Cost categories appear in the left column, followed by the sum of Initial Investment Costs for that category. P2/FINANCE lists all costs in Year 0 dollars (i.e., uninflated dollars) on the Scenario Summary. Next to the Cost for each cost category appears its Salvage Value (also in Year 0 dollars). The financial parameters follow with Investment Year, Lifetime, Depreciation Period, and Depreciation Method defined for each cost category. The Initial Investment Costs section provides a quick check on the data and financial parameters for the investment portion of a scenario.

The Annual Operating Costs section of the Scenario Summary lists information entered on the Annual Operating Costs sheet for the scenario. The names of the Annual Operating Cost categories appear in the left column, followed by the sum of the Annual Operating Costs for that category (in Year 0 dollars). The financial parameters follow with Start Year, End Year, and Escalation Rate defined for each cost category. The Annual Operating Costs section provides a quick check on the data and financial parameters for the operating cost portion of a scenario.

The Global Parameters section lists some of the Default Parameters defined on the Default Parameters sheet. These Global Parameters affect all scenarios within a project and, with the exception of default Depreciation Method and default Depreciation Period, cannot be tailored to a particular scenario or cost category. In the Global Parameters section, P2/FINANCE reports the Project Title, Inflation Rate, Discount Rate, Aggregate Income Tax Rate, default Depreciation Method, and default Depreciation Period.

The Scenario Parameters section lists the remaining Default Parameters defined on the Default Parameters sheet, those parameters that relate to an individual scenario. In the Scenario Parameters section, P2/FINANCE reports the default Investment Year, default Lifetime, default Start Year, and default End Year.

Note: The financial parameters defined for a specific cost category always override the Default Parameters at either the global or scenario level.

Accessing Other Scenarios

The Scenario Summary sheet contains three sections, one for each scenario(Alternative 1, Alternative 2, and Base. To move between scenarios, click the relevant scenario button at the top of the screen. The buttons say: Alt1, Alt2, and Base.

The scenario buttons allow you to move between scenarios, differing from the tab buttons at the bottom of the screen, which allow you to move between sheets within a scenario.

Printing Scenarios

To print a section of the Scenario Summary sheet, click on the Print button at the top of the screen to access the general Print Selection Menu. From this menu, select the Scenario Summary sheet and the scenario(s) you want and then click Okay. If you are working in the Scenario Summary sheet, it will already be selected for you. You can print other sheets by selecting them instead of or in addition to the Scenario Summary sheet.

Accessing Help

To access the on-line help screen for the Scenario Summary sheet, click on the Help button at the top of the screen. The help screen defines each of the components of the Scenario Summary sheet. To exit the help screen, click on the Return to Top button at the top of the screen. You may also use the tab buttons at the bottom of the screen to select a different sheet.Tax Deduction Schedule

The Tax Deduction Schedule describes in detail the depreciation and other tax deduction calculations for each scenario and serves as input into the Incremental Cash Flow Analysis sheet. For each scenario, P2/FINANCE generates a Tax Deduction Schedule that reports the tax deductions related to each cost category in every year, over a period of 15 years.