April 29, 1999
Dear Everyone:
Got a crash course on the difference between
Capital
Expenditure and
Depreciation this week.
One of the things we need to do before we can start getting out of
Versatile and
into extemporé
is decide whether to buy a standalone
server and
maintain it ourselves, or to lease space on a server owned and operated
by CITC (Company Information Technology Company).
Having gone through all the headaches associated with the care
and feeding of a server, I was all in favor of renting from CITC.
And they very much want our business.
But first, I have to “prove” that this is a good idea.
This means pulling together facts and figures to show that, over
a three-year period, it would cost us “this much” per month to rent.
Then I had to find the numbers to show that, over a three-year
period, it would ultimately cost us “this much more” to own.
A server would cost us $19,599.10 (I love the “and
ten cents”). This I got from
CITC, based on the type of server they recommend for what we want to do.
Add to that the cost to have CITC maintain the server for us.
And the cost of the software to run it, not to mention the
database that extemporé “fronts” for.
And a bunch of other things, all adding up to a couple of
thousand more per month to buy than to rent.
So, you’d think it would be pretty obvious that we
should do things my way, right?
But first, I had to include what the “depreciation” would cost.
You see, you don’t just plunk down $19,566.10 for the server.
It has to come out of “capital expenses”.
This is an imaginary pot of money that belongs to the Company.
You “borrow” the money from the Company to buy the server, then
pay the Company back based on a “depreciation formula”.
This is not unlike having your Big Sister buy the
VCR for you, then you paying Big Sister back over time.
Only Big Sister is probably more forgiving about when you pay it
back than the Company. In
fact, the Company starts charging you for depreciation the month after
the purchase is made. And
they don’t ask you for the money, they tell you how much they already
took from you.
So I went to “Doug” (our financial analyst) to find
out how much the server that we don’t want to buy would cost us in
depreciation over three years if we did buy it, even though we don’t
want to. He presented me
with an Excel
spreadsheet that
“explained” how much it would cost per month over six years.
I pointed out to him that company policy is now to
replace computer equipment every three years to keep up with technology.
He recomputed the spreadsheet and came up with the following:
For the first year, we would pay back to the
Company 25% of the total cost of the server, divided into twelve monthly
installments. The second
year, we would pay 25% of the remaining 75% of the cost, in easy-to-pay
monthly installments. The
third year, we would pay 25% of whatever was left, also in easy-to-pay
monthly installments. At the
end of three years, we would pay of the remaining “depreciation” in a
kind of balloon payment. And
how much would that cost us over three years?
A total of $19,599.10.
And that’s the difference between capital expenditure and
depreciation. Now you know
why I don’t bother trying to balance my
checkbook every month.
Bottom line:
I’m very hopeful that we can finally get this darned decision
made so we can move on to getting an evaluation copy of
extemporé
for testing. I’m dying to
get my hands on that software and find out what it can really do.
Also on the computer front, “Jeannie” and Oberon
are starting to get to know each other.
I tried showing her how to enter receipts into Excel last
Saturday; but it soon became evident that she needed far more basic
information than that. So we
went out and got a couple of “Dummies”
books for her to go through.
While leafing through one of the books during
lunch, she ran across a way to minimize a window without using the
mouse. “Jeannie” may think
she doesn’t know any more about computers than the neighbor’s dog; but
I’ve been searching (in vain) for that particular
shortcut
for years.
Go figure.
Love, as always,
Pete
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