Making Economic Decisions

Transcript Area

In this Excel tutorial we will be taking a look at how to make an economic decision with an alternative fuel example. As you can see, I’ve put my information about the vehicle I'm interested in. Notice that I'm using the same format that was discussed in Excel basics, which is a video you should watch part of doing this one. Car information that I have was, I was evaluating a regular Lexus SUV and the hybrid, when it first came out.

I have all the information pertinent about the car and gas prices at that time. Turns out, I drove about 11,000 miles per year. So what I want to know is, how fast could I recoup that $5000 cost difference. Notice that I've calculated that here by taking C3, which is the price of the hybrid minus the regular. Now, gas at the time was about $2 per gallon. I figured that the gas was going to go up about 5 percent per year. So what I could do was go equal, point to my cell, and do times, which is the shift number 8 key, 1.05 because I thought it would increase 5 percent every year. They gave me 2.10. I also need to do this for year 3, 4, and 5. I can repeat that formula by simply, notice how my cursor changes, pulling the formula down. Notice it changed, C17 times 1.05 and so on.

Why it will change is this C17 is called a relative address, when I do a pull down like that, it will increment by 1. But, in terms of gallons of gas regular that I used that's not going to change. Notice I calculated that with as equals B9 which is my 11,000 miles that I drive per year and dividing in it by B4, which is the city miles. I'm evaluating mainly city miles, because that’s what I drive. Now, if I grab this, notice that it incremented by 1, this became B10 divided by B5. I don't want that. I want this to stay the same. So I can lock these cells down by simply putting a dollar sign in between, like this.

Okay and I can make any cell lock, so that it will not increment like that, okay? Notice when I finish that I get 578.95. When I grab the corner and pull it down, it maintains that all the way through. I did the same thing for gallons of gas for my hybrid. I took my 11,000 and divided by 31 and I got this and simply here I took is the difference in gallons of gas. So when I grab this corner it's going to increment and work with each one of these. And then I figured out my savings by simply calculating the difference times my cost per gallon.

Notice, this is changing every year, because I'm incrementing up when I pull down everything incremented by one, so it's keeping track of this times the gas price increase. Now, when I got here, I was like, well after 5 years where am I? I can simply go to formulas and do auto sum and notice it highlighted the things that I'm interested in summing up. And it says I only saved $2,476.68, which is really not yet recouping my $5000. Notice some things here that I have not taken into account.

I've not taken into account time value of money, which is important but it does show how you can use Excel just to figure out just about anything you want to know. What this told me is the gas prices are really need to go up, for me to save my $5000. So remember, Excel can do many, many things. Try them out. Just remember, you need to keep your information as organized as possible and remember, relative cells, absolute cells and that you can sum things, to find out what you're interested. The answer is, I didn't buy the hybrid, because I didn't think I could make my money up fast enough.