The following is a discussion of the data needed to estimate the present value of alternatives. Data requirements are discussed in more detail in OMB Circular A-94.
Table 1-Basic Data
The basic data regarding the lease and lease/purchase alternatives are entered in the appropriate cells. The information should be provided by a qualified person, such as a Forest Engineer, Architect, or other authority. Interest rates required to perform the calculations in the model can be obtained from Appendix C of the current issue of OMB Circular A-94. The appendix indicates the time period for which it is valid, and is updated annually.
Table 2-Purchase a Facility
Purchase price for land and building may be imputed costs if they are already owned by the Government. OMB Circular A-94 requires this, and Section 13.c.6 directs that the fair market value for similar properties be used in determining these values. In addition, any ancillary services costs must be calculated. OMB Circular A-94, Section 13.c.5, gives several common examples of ancillary services.
Table 3-Construct a Facility
Construction costs for buildings can be estimated by knowledgeable Forest Service facility engineers. Estimates should include costs for land, design, supervision, and construction. Plumbing and electrical hookups, landscaping, and parking lots are also among the costs included in the construction cost estimates. The recommended estimate for design is 6 to 12% of the construction costs and for supervision is 10 to 15% of construction costs. A text box on the spreadsheet gives directions for changing the default percentage-or entering actual costs, if they're known.
For the purpose of this program, a 3-year construction period is assumed. Because design and construction occur over several years, construction costs are spread out over the 3-year period. Land and design costs are assumed to be spent in year 1 of the construction period, while actual construction costs are spent during the 2 remaining years with 60% spent in year 2 and 40% spent in year 3. The program allows the user to use different distribution percentages; your engineer or architect should be able to provide accurate estimates for these values.
Construction expenditures mean an opportunity to earn interest is lost as money is spent. Although no interest is actually charged on construction funds, that opportunity cost must be addressed for the purpose of this economic analysis. While costs normally occur throughout the year in which they are spent, with the exact pattern depending on the Congressional appropriation schedule and contractor requirements, it is sufficient to assume that expenditures will occur uniformly throughout the year. To compute interest for each year, accounting convention calls for determining the yearly expenditure and dividing it in half. This implies that, on the average, one-half of the money is borrowed during the entire year.
A cumulative expenditure method is then used to compute the interest during construction. Basically, the interest-bearing expenditure for each project year is half of the expenditure for the year in question, plus expenditures from all previous years, plus all interest from previous years, multiplied by the current interest rate. The sum of interest from all construction years is the total Interest During Construction (IDC) for the proposed project.
Essentially, IDC factors in the time value of money on construction dollars during the 3-year construction period, and reflects the incremental dollar value of an investment due to compounding at the time the building is occupied. These calculations are summarized in Table 3, and included in the total for the "Construction" alternative in the summary in Table 5. 0
Table 4-Annual Expenditures
The annual expenditures for each alternative must be identified to compute the discounted Net Present Values (NPV) included in the summary totals.
Ancillary services, including utilities, janitorial services, real estate, insurance, and building maintenance, may be included. Reserves for Replacement may also be included in the lease payment. In order to ensure that comparable alternatives are being analyzed, the costs for obtaining these services should be included in the costs associated with the other alternatives.
Residual value is an estimate of the price that the property could be sold for at the end of the period of the lease-purchase analysis, measured in discounted net present value terms. The Office of Management and Budget requires that these values be measured in net present values, and suggests three methods for estimation:
Note: Residual values can influence, to a great degree, the alternative chosen by the model. Great care should be exercised in reaching these values. Residual values are imputed into Table 4.
Table 5-Annual Cash Flows
The cash flows are necessary for the spreadsheet model to determine Net Present Values. The summary contains the formulas for determining each alternative's cost to the government, in discounted present value dollars. All these values are derived from data that was entered in the previous four tables, so nothing needs to be input in Table 5. Because these are cash outflows, the values are in parentheses, indicating negative values.
Visitor
since October 1, 1999