The payback (including discounted payback
) model of investment appraisal continues to be the most favoured by practitioner (see, tables 1 and 2), with fifty-nine (i.e.
Table 5 gives the computation of discounted payback
Assuming a capital investment of $15 million, the discounted payback
period is just slightly over 2 years.
We distinguish between the DCF techniques (NPV, IRR, APV, and the discounted payback
period) and the non-DCF techniques (the DCF variable has the value of one if the response to at least one of the four DCF technique questions exceeds two, and zero otherwise).
$ 41,216 Equipment service contracts Equipment depreciation $ 1,000,000 Consruction depreciation $ 12,000 Software/Interface depreciation $ 6,000 Other test related expenses $ -- Indirect expenses $ 3,070,781 Total Operating Expenses for Tests $ 25,102,451 Net operating Cash Flow $ 1,677,854 Depreciaton Add Back $ 1,018,000 Net Cash Flow $ 2,695,854 Cumulative Cash Flow Discounted Cash Flow $ 2,064,419 Financial Analysis Total Capital Investment $(1,018,000) Total Discounted Cash Flow 2,064,149 Net present Value @ 7.00% $ 1,046,149 Acceptable Internal Rate of Return 29% Acceptable Hurdle Rate 11% Return on Investment 62% Discounted Payback
Period 3.6 Years vs.
The solution lies in performing four analyses: critical constraint, loss probability, present value and discounted payback
. When identified and cross-checked, this process determines optimal retention levels.
The following financial calculations are conducted for each analysis: Cost Savings, Total System Cost, Simple Payback Period, Discounted Payback
Period, Net Present Value, Life Cycle Cost, Cost of Business as Usual, Savings to Investment Ratio, Internal Rate of Return, Levelized Cost of Energy, and Greenhouse Gas Reduction.
The advantages of the Discounted Payback
In the past the project committee has done this for electricity use by applying a life-cycle discounted payback
using a weighted average electricity consumption cost (in other words, a flat rate) for the U.S.
Discuss the problem with using real cash flows and a nominal WACC when calculating a project's Discounted Payback
Period, NPV, IRR and MIRR.
It is now possible to extend the NPV to include the discounted payback
period, the discounted payback
index and, at last, to arrive at a marginal growth rate.
Instead, they had to settle for discounted paybacks
of 25-30 percent with real estate options in lieu of the entire balance of the debt.