*equipment*. It will engage directly the cost of acquisition, and costs associated with installation and commissioning. For example, if you plan to acquire an additional pipeline, which will allow to redistribute the workload, the parameter "Capital investments" calculate the price of the device, the amount of delivery, the cost of installation and start-up. However, if all the preparations was carried out by a staff member of the company, and therefore the organization was able to avoid additional costs, over and above the purchase cost to add nothing.

*of equipment*. For example, if a new furnace in a month is to bake 500 loaves of bread and sold at a price of 20 p per unit of product, and raw material costs from the calculation of a loaf will be 5 R, then gross profit will be equal to R 7500 (7500 = (20 R – 5 R) * 500). While the costs of the salary Fund are not taken into account, but if the service

*equipment*is employed additional staff, payments for newly hired employees need to be considered. Tax deductions should be ignored – they will in any case depend on the total amount of income. Thus, gross income is the difference between the sales price and production costs in trade – the amount of allowances.

**of return**; – capital expenditures; VD – gross income.When calculating the period

**of payback**can take any length of time. If you select quarter, the amount of gross income is also taken per 3 calendar months.

*of equipment*, because according to popular wisdom, "Saved – then earned".

# Advice 2 : How to calculate payback

- calculator
- - handle
- - a sheet of paper

For example, we bought an apartment on the first floor of a residential building over 3 000 000 RUB 600 000 we spent for repair and bureaucratic procedures and the arrangement of the adjacent territory. Then, by submitting the Declaration, handed over the premises to the lessee, who is to pay the monthly utilities and the amount of 40 000 rubles.

Thus, our investments amounted to 3, 600, 000. And the monthly profit of the project is 40 000 rubles. For the full payback of the investment will be required to surrender our space for rent for (3 600 000 / 40 000 90 months, or 7.5 years.

Thus, the ROI will come through the (300 000 / 40 000 a) 7.5 months.

For ease of comparison, take the amount of the Deposit equal to the cost of the GAZelle, 300, 000. Assume that, under the terms of the Bank, interest is paid at maturity. Thus, after 1 year, the amount of our investment will grow to (300 000 * 10,5%) 31 500 rubles. And we will have 331 500 rubles.

For 12 months of work in freight, we will receive (40 000 x 12) 480 000 RUB. From a mathematical point of view, this means that in our examples it is more profitable to invest in transportation, and not to the Bank.

I hope that now you will make financial decisions with greater rationality.

# Advice 3 : How to find the payback period

**Period**

**payback**is the time interval over which the investment in the project will pay for itself in full. Typically, this time interval is measured in months or years. But how to find the period

**of payback**, and that it may need?

- table showing the time (e.g. year) and appropriate capital investment in the project, calculator, Notepad and pen

The time period and the Investment and profit

0 - 50 million rubles

1 - 10 million rubles

2 + to 5 million rubles

3 + 20 million rubles

4 + 30 million rubles

5 + 40 million rubles

NDP = B1 + B2/(1 + SD) + B3/(1 + SD) + V4/(1 + SD) + B5/(1 + DM) where

The NDP is the accumulated discounted flow V1-5 – attachments for a certain period of time, SD is the discount rate.

НДП1 = - 50 – 10 / (1+0.1) = - 59.1 million rubles.

In this way we hope НДП2,3,4 and so on, until a zero or positive value.

НДП2 = - 54.9 million rubles

НДП3 = - 36.7 million rubles

НДП4 = - 9.4 million rubles

НДП5 = 26.9 million rubles

Thus, investments into the project will pay off fully only in the fifth year of the project.

**of payback**of the project according to the following formula:

T = TC + (NC/PN),

Where T – period

**of payback**, TC is the number of years prior to

**payback**, NS – unrecovered cost of the project at the beginning of the year

**of payback**, that is for 5 year (last negative amount NPD), MON – cash flow in the first year

**of payback**(40 million rubles).

In our example, T = 4 + (9.4 / 40) = 4,2 year.

In other words, the project will pay for itself in 4 years, 2 months and 12 days.

# Advice 4 : How to calculate the payback period of the project

**of the project**. This indicator is required when writing a business plan and finding investors, as this item interests them first and foremost. How to calculate

**the period**of payback

**of the project**?

- calculator,amount of investment, variable and fixed costs, planned profit, Notepad and pen

**of the project**is the period of time over which net income from the investment

**of the project**will be able to fully cover the entire investment in the project. This indicator is denoted as "S inv.

**of the project**. For this you need to use the following formula.

S PR=S exp-(S post. ed+ S ed lane)

It should be remembered that the figures for different years are not the same. If business develops successfully, the costs are growing (requires more space, more staff, etc.), but revenue and profit are also not standing still.

**the period**of ω payback

**of the project**, that is, when all the investments in the project, returned. To calculate this indicator you need to use the following formula

S inv – S PR

When the answer is zero – the project will be considered fully recoup. If a large-scale project for a year, he couldn't get to breakeven, so the metrics should be calculated for several years.

**of the project**, should remember and understand that

**the period**of payback

**of the project**is not calculated separately from other indicators. It is always associated with the index of the current value and the internal rate of return (IRR).

# Advice 5 : How to determine the payback period of the project

**project**has to consider a number of indicators showing economic efficiency of investments. One of the fundamentally important parameters

**of a project**is

**the term of**its

*payback*, that is the expected number of years required for the full recovery of investment costs.

**the period of**a

*recoupment*

**of the project**:T(s) = T1 + S / N;where:

T (OK)

**period**

*of recoupment*;

T1 – the number of years that precede the year

*of recoupment*;

– Unrecovered cost (beginning-of-year

*payback*

**of the project**);

N – cash flow per year

*payback*.

**the term of**a

*payback*with an example. Suppose that the investment project "alpha" requires investments in the amount of 1,000 conventional units. The forecast revenue stream as follows: 1 year – $ 200.e. 2 year – 500.e. 3 year – 600.e. 4 year 800.e. 5 year 900.e. The discount rate is 15%.

**term**does not take into account the rate of return for investment in a particular chosen field, and therefore can not be a true representation of temporal parameters

*of payback*.

**the term**

*of recoupment*according to the above equation.T (OK) = 3 + 54/458 = 3.1 years.In other words, for the real compensation the amount of the investment expenses taking into account the time factor will need significantly more

**time**than we got when calculating the simplified method.

# Advice 6 : How to calculate payback period

PP = I/CF where:

PP – payback period,

I – the initial investment in the development of the project,

CF – the average annual value of cash receipts from the project.

# Advice 7 : How to determine the payback period of capital cost

## The essence of the payback period of capital investments

In economic analysis there are different approaches to the definition of the payback period. This figure is used in the framework of a comparative analysis in the determination of the most favorable option for investment. It should be noted that it is only used in complex analysis, make the payback period for the main parameter of efficiency is not quite right. Definition of payback period as a priority is only possible if the company is focused on rapid return on investment.

On the other hand, under other equal conditions, preference is given to projects that have the shortest payback period.

During implementation of the project with borrowed money, it is important that the payback period was shorter than the period of use of external borrowings.

The indicator is a priority in that case, if the investor's principal is the most rapid return on investment, for example the choice of ways of financial improvement of bankrupt enterprises.

Under the payback period is the period during which the reimbursed capital costs. This is achieved due to additional income (for example, more efficient equipment) or savings (for example, the introduction of energy efficient production lines). If we are talking about the country, then compensation is due to the increase in national income.

In practice, the payback period is the time period during which the profits of the company, secured capital investment equal to the investment amount. It can different - a month, a year, etc. Importantly, the payback period did not exceed normative values. They differ depending on the specific project and industry focus. For example, to upgrade equipment at the enterprise normative one, and in the construction of the road is another.

The calculation of the payback period should be performed with respect to the time lag between capital investments and the effect of them, as well as changes in prices and other factors (inflation, rising cost of energy, etc.). According to this approach, the payback period - the time period through which when considering a discount rate would level a positive cash flow (discounted income) and negative (discounted investment).

## The calculation of the payback period

In its simplest form, the payback period is calculated as the ratio of capital investments to profit from them. However, this approach does not account for the temporal estimation of the investment costs. This leads to nekorrektno, a conservative estimate of the payback period.

More correct is the analysis of investment projects taking into account inflation, alternative investment options, maintenance of the loan capital.

Therefore, the payback period is equal to the sum of the number of years that preceded the year of payback, and relationships unrecovered cost at start of year payback to cash flow during year of payback. The calculation algorithm is as follows:

- calculation discontinuing cash flow based on discount rate;

- calculation of cumulative discounted cash flow as the sum of costs and revenues on the project - it is calculated before the first positive value.

It only remains to substitute these values into the formula.

# Advice 8 : How to calculate the payback period

## Calculation of simple payback period

Method simple payback period is one of the easiest ways of evaluation of the project. To calculate this index it is enough to know the net cash flow for the project. Based on this calculated balance of accumulated cash flows. When choosing among several investment projects to implement the adopted project, whose payback period is the least.

Assume that the initial investment in the project amounted to 180 million rubles. The project will be implemented within 5 years, it will annually generate cash flows:

1 year: 40 million rubles

2 year: 30 million rubles

3 year: 50 million rubles

4 year: 70 million rubles

5 year: 90 million rubles

It is necessary to calculate the simple payback period.

Using the data presented, it is necessary to make the analytical table. The payback period for the project is calculated by summing the annual cash flows as long as the amount of future cash inflows is equal to the magnitude of the initial investment costs.

The table shows that the balance of the accumulated cash flow takes positive in the period between 3rd and 4th year of implementation of the investment project. To calculate the exact payback period will help the following formula:

In this example, the payback period is: 3 years 10 months

The main disadvantage of this method is that the calculation is not used, the procedure of discounting, and thus does not take into account the decrease in the value of money over time.

## The calculation of the discounted payback period

Discounted payback period is the period for which the discounted cash flows to cover the initial costs associated with the investment project. Discounted payback period is always less than simple, as over time, the value of cash is always decreasing. The procedure of discounting allows to take into account when calculating the cost of capital employed.

Assume that the initial investment in the project amounted to 150 million rubles. The discount rate is 15%. The project will be implemented within 3 years, it will annually generate cash flows:

1 year: 30 million rubles

2nd year: 120 million rubles

3 year 15 million rubles

It is necessary to calculate discounted payback period.

The presented data it is also necessary to make the analytical table. In the first stage is calculated discounted cash flow in each period. Discounted payback period for the project is calculated by summing the annual discounted cash flows as long as the amount of future cash inflows is equal to the magnitude of the initial investment costs.

The table shows that the balance of the accumulated discounted payback period does not take a positive value, therefore, in the framework of the project payback is achieved.