My analysis included fuel alone. This is how I did the calculation:quote:

Originally posted by haley10:

Pitzel is probably including the oil in the overall big picture and 10% is doable. He's probably a good investor overall.

1) Assumptions: $84/year (1st year fuel difference), 3% inflation on fuel cost and in the general economy, 10% discount rate.

2) 20th year cost = 84 * 1.03^20, 19th year cost = 84 * 1.03^19, 18th year cost = 84*1.03^18 ...., nth year cost = 84*1.03^n

(takes into account inflationary effect on fuel).

3) Net future (20th year) of year 1 fuel = 84*1.10^20, net future (20th year) of year 2 fuel = 84*1.03^2*1.10^19, net future (20th year) of year 3 fuel = 84*1.03^3*1.10^18, .. net future value of year n fuel = 84*1.03^(n-1)*1.10(20-n).

4) Sum of net future (20th year) values = Sum(n=1..20)[84*(1.03^n)*(1.10^(20-n))]

5) Convert to 2004 (Present) dollars by dividing by 1.03^20, the inflationary multiple:

Net Present Value = {Sum(n=1..20)[84*(1.03^n)*(1.10^(20-n))]}/1.03^20

When all that math is done, the result is equal to approximately $3600 of present 2004 dollars. Anyone want the Excel spreadsheet for the calculation?

[ December 31, 2004, 03:41 PM: Message edited by: pitzel ]