Inflation Calculator

[Guest]

I am trying to show payback of a purchase
I would like to have something along the lines of

(current cost * 4% annual inflation) / (cost of System) = (number of years
system pays for itself)

 

[Bob I]

I am trying to show payback of a purchase
I would like to have something along the lines of

(current cost * 4% annual inflation) / (cost of System) = (number of years
system pays for itself)

How can this system pay for itself? Does it generate income? Inflation
will tell you the future cost to replace the system.

 

[Guest]

I just really need to know how to calculate the future cost if something will
increase 4% yearly.

the "system" is a service we offer that eliminates "current cost"

 

[David Biddulph]

The inflated price would be =A1*(1.04^A2) if A1 is the original price and A2
is the number of years.

 

[Bob I]

Take 1.04 raised to the power of the years you want to calculate for,
multiply by the current cost, then subtract the current cost to see what
the difference is.

 

[Fred Smith]

The other option to calculate future cost is the FV function.

 

[Guest]

Won't that create a circular referance? I am trying to find Years. I know
"current cost" I know inflation rate and I know "system cost".

I need to find time it will take for "system cost" to eual acrued "current
cost" with 4% inflation

 

[Guest]

I am solving for years.

Take 1.04 raised to the power of the years you want to calculate for,
multiply by the current cost, then subtract the current cost to see what
the difference is.

 

[Guest]

That isn't right. I need it to give me compounded inflated price.
For example if A1 = 100 and A2 = 4 then the answer should be 424.6464 not 416

 

[Fred Smith]

If you're solving for years, use the NPER function.

 

[David Biddulph]

If you know the answer and one of the parameters of the equation is an
unknown, then you can use goal seek.

The other way of tackling it is to say that the number of years
=LOG(A5/A1,1.04), where A5 is your inflated cost and A1 is your original
cost.

 

[David Biddulph]

Telling people "That isn't right" when they've given you the correct answer
to the question you've asked is not the wisest way of encouraging the
participants in the group to help you with your problems.

Taking your example, if A1=100 and A2=4, the answer is 116.9859, so I don't
know where you get your 424.6464 or your 416.

 

[Bill Ridgeway]

You can keep up-to-date with the monthly (UK) inflation rate at
http://www.statistics.gov.uk/cci/nugget.asp?id=19

Regards.

Bill Ridgeway
Computer Solutions

 

[Bob I]

OH! Rule of 70! Or 72 which ever you prefer. Simply divide 70 or 72 by
the rate of inflation. There is plenty references to it if you google.