The payback period is the time interval for which the investments made in the project will pay off in full. Typically, this time interval is measured in months or years. But how to find the payback period and what may be required for this?
It is necessary
table showing time (e.g. year) and corresponding capital investment in the project, calculator, notebook and pen
Instructions
Step 1
Make a table of investments (investments) and planned income from the project for each year. For example, the company plans to implement the X project, the cost of which is estimated at 50 million rubles. In the first year of implementation, the project required additional investments in the amount of 10 million rubles. In the second, third, fourth and fifth years, it is planned that the project will begin to generate profits in the amount of 5, 20, 30 and 40 million rubles, respectively. Then the final table will look like this:
Time period and Investments and profits
0 - 50 million rubles
1 - 10 million rubles
2 + 5 million rubles
3 + 20 million rubles
4 + 30 million rubles
5 + 40 million rubles
Step 2
Determine the accumulated discounted flow, that is, the amount of investments that changes according to the planned income. For example, the project "X" at the enterprise, the return on the project or the discount rate is 10%. Calculate the accumulated discounted flow to the first positive value using the formula:
NDP = B1 + B2 / (1 + SD) + B3 / (1 + SD) + B4 / (1 + SD) + B5 / (1 + SD), where
NPD - accumulated discounted flow, В1-5 - investments for a certain period of time, SD - discount rate.
NDP1 = - 50 - 10 / (1 + 0.1) = - 59.1 million rubles.
Similarly, we calculate NDP2, 3, 4, and so on, until a zero or positive value is obtained.
NDP2 = - 54.9 million rubles
NDP3 = - 36.7 million rubles
NDP4 = - 9.4 million rubles
NDP5 = 26.9 million rubles
Thus, the investments made in the project will pay off in full only in the fifth year of the project.
Step 3
Calculate the exact payback period of the project using the formula:
T = CL + (NS / PN), Where T is the payback period, KL is the number of years preceding the payback period, NS is the unreimbursed cost of the project at the beginning of the payback year, that is, for 5 years (the last negative amount of the NDP), PN is the cash flow in the first year of payback (40 million rubles).
In our example, T = 4 + (9.4 / 40) = 4.2 years.
In other words, the project will pay for itself in 4 years, 2 months and 12 days.
