How to calculate the payback period of the project

Calculate the volume of investment. Term of payback of the project is the time necessary for the net profit from the project covered the total investment volume. In the computational formula, we denote this space as Inv.

Analyze projected variable costs for the implementation of the project: equipment depreciation, salaries of employees, payment of taxes and fees, licenses, logistics costs, etc. This figure we denote Per ed.

Calculate the sum of the fixed costs for the implementation of the project. It is indicated in the formula Post ed.

Given the implementation of the project and possible seasonality, which will affect the profits, predict the profit per unit of time: day, month, quarter, year. Depending on the length of the project in time. In the formula it is marked PR.

Calculate the period of payback of the project Top according to the following formula:Top = Inv/(PR-(Post ed + Per ed)

More correct is the calculation of the discounted period of recoupment. In addition to the mentioned formula in its calculation also uses the following indicators and concepts:flow of funds in addition to the initial investment over a period of time.

The ratio of investment amount to the sum of the inflows in one period and amortization for the same period of time.

Determine the monetary equivalent of the total production or amount of services rendered where the amount of the initial investment will equal the amount of net income. This point is called the breakeven point of the business.

Realizing the amount of money that needs to be completed to achieve the break-even point of the business and correlating this figure with the power of production in the same unit of time calculate the discounted period of recoupment.

It is important to remember and understand that the rate of return is never used independently but only in conjunction with the values of the current value and IRR.