The Power of Electronic Spreadsheets

The popularity of spreadsheet software is partly because once a worksheet is organized and saved, then some or all of the values in the worksheet can be modified and new results are automatically calculated.

Take the amortization of a bank loan as an example. If you borrow $5,000 at 8% interest over 36 months, then your monthly payments would be $426.72.

What if another bank offers you 7.5% interest for the same loan? How much would your monthly payment change?

What if you extend the loan over 48 months. How would that change the payment?

Calculating the answers to these types of questions is a complicated task and before computer programs were designed to do the tedious calculations, accountants and bank employees would often refer to books of prepared tables that contained the answers already calculated. These are called Amortization Tables and are still available today. More often than not, professionals who need to work this out on a regular basis now have special calculators or computer programs to make their job easier.

Spreadsheets are called What if tools because you can quickly find answers to those questions about the bank loan and more.

Consider the Following Situation

You have just moved into a new apartment and you want to buy some furniture. You have only $500 dollars to spend so you must plan carefully what you will buy. Since Ontario has an 8% Provincial Sales Tax (PST) and there is a Goods and Services Tax (GST) across Canada, you want to know what you can buy including the taxes without going over $500.

So you sit down and plan to buy these things:

  1. How much will all these things cost together ?
  2. How much will the 8% PST total?
  3. How much is the 7% GST?
  4. Is the total before tax less than $500? If the total after tax is more than $500, what is the one thing that you can take off the list to bring it below $500?
  5. Do the calculations for all the items together (cost A) and then for all the items less the one (cost B).

Item

Cost (a)

Cost (b)

a desk

a chair

a desk lamp

a book case

a small filing cabinet

a clock radio for the bedroom

PST

GST

Total

The Answers

Consider Another Situation

Here is another problem. You are planning to buy your first car. You do not have a lot of money saved, just $1500, so you will need a bank loan. After you find the car you like, imagine it is a 1993 Honda Civic for $11,250, you go to the bank manager and ask for a loan. The bank manager says she will give you the loan of $9,750 at 11% interest but you must pay it back over the next 4 years.

You sit down and begin to figure out if you can afford the monthly payments.

  1. How much will you have to pay each month?
  2. What if you paid the loan back over 5 years? How much would you have to pay each month then?
  3. If another bank would loan you the same amount of money at 10.5% interest, then how much does your monthly payment change?

These questions are not easy to answer without a good calculator and a lot of work. Computer software called spreadsheet programs help people make business and financial decisions more quickly.

Questions

  • How does a spreadsheet program help people solve problems?
  • What is a spreadsheet?
  • What is the difference between a spreadsheet and a worksheet?
  • A spreadsheet is sometimes called a "smart" calculator. Why?
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