On Wed, 13 Feb 2008 06:16:37 -0800 (PST), wrote:
the tests are done per EPA rules and specs by an independent
testing lab.

I agree. Intertek Testing Services is supposedly independent. If anyone has
information otherwise, please post.

In other words, over analyzing this whole thing is likely a waste of
time. Even the above payback analysis is flawed, because it ignores
the time value of money.

Very good point.

Here are the original calculations I posted for inspection:
a. Additional cost of more efficient model = $882 - $747 = $135
b. Annual savings of more efficient model = $313 - $288 = $25 per year
c. Payback period = $135 / $25 * 365 / 30 = 65 months (5.4 years)
e. Overall savings = (13 years - 5.4 years) * $25/year = $190

How would we change these to take into account the time value of money?
As always, I'll hazard my math to see if it stands up to scrutiny.

Using the compound interest calculator here ...
http://www.moneychimp.com/calculator...calculator.htm
that $135 at 5% compounded monthly over the 5.4 years payback period
actually costs $176.75 at the 65-month point.

You're right. That's a big difference! (I don't use credit cards so I won't
factor in the additional, but huge, credit-card costs if paid on
installment!)

Conversly, the annual savings over that same 65-month period is also
increased, from $25/year to $26.28 per year using the same 5% interest rate
compounded monthly.

This more accurate payback-period calculation then becomes $177 / $26 * 365
/ 30 = 83 months (6.9 years).

The overall savings now shrinks a whopping 16% from $190 when not taking
into account the time value of money, to (13 years - 6.9 years) * $26/year
= $159

Thanks for testing the math. Please let me know what you think of the new,
more realistic calculations which take into account the time value of
money.

Donna
PS Can someone in the field write a calculator to do all this math for us?