Payback of the project: a couple of simple examples

The end of work on any project ends.calculation of the period or the period of its payback. There are certain time limits, reaching which any company must generate income. Otherwise the project is considered unprofitable. In this case, to save the work done (if the result is recognized

unpromising, are beginning to change economicindicators: reduce the cost of materials, equipment, technology. To calculate the payback of a project, the minimum that needs to be known is the expected profit and capital investments, both one-time and periodical. In the first case, the calculation is rather primitive. The recoupment of the project is calculated by dividing the one-time capital investment by the annual profit.

For example:when building a tool shop, resources were invested in the purchase of land, building materials, payment for labor, and the purchase of equipment. Roughly speaking, in the first years of its existence, the maintenance of the building does not require repair. Therefore, the payback of the project will be equal to 3 million rubles (land) + 15 million rubles. (construction materials) + 10 million rubles. (payment of labor) + 200 million rubles. (purchase and installation of equipment) / 50 million rubles = 4.56 years.

Perhaps even a non-expert it is clear that suchthe calculation is rather primitive: in any case, the investment does not end at the stage of commissioning the building. Wages to workers, payment of energy, equipment repair and much more are included in operating expenses, which significantly affect the payback period of the project. The same formula can not always be applied in different conditions, areas of production or services.

The payback period of the investment project will beit is calculated correctly only in the case of taking into account current maintenance costs (and if the project provides for reconstruction or innovations in an existing enterprise, then also taking into account savings in operating costs).

For example:At the railway station, an additional way for the reception of freight trains has been built and commissioned. Then the payback of the project will be limited to a period that is equal to the inverse of the discount rate. This attitude, in turn, is comparable to the ratio of capital costs to making the difference in operating cost savings and additional costs and unit difference and the share of all tax payments. Agree, rather confusing definition. Everything looks much simpler as a formula: T = 1 / E = K / (E-Edop) * (1-y).

In our example, running costs will beperform costs for repairs, lighting and depreciation paths. The savings in operating costs must be calculated on the basis of the estimated rate for one car-hour of idle time and the saved car-hours.

If you know the payback of the project, or rather, itsperiod, then in the future you can easily calculate the economic efficiency of the entire enterprise as a whole. It is determined by the internal rate of return, yield index, net present value. It is sometimes simplified to net income. The payback period of the project, the calculation of which we presented last, just fits this case.