Instruction

1

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.2

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.3

Calculate the sum of the fixed costs for the implementation

**of the project**. It is indicated in the formula Post ed.4

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.5

Calculate the period

*of payback***of the project**Top according to the following formula:Top = Inv/(PR-(Post ed + Per ed)6

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.7

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

8

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.

9

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*.10

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.# Advice 2: How to determine the payback period of the project

When buying a ready business or the preparation of an investment

**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.

Instruction

1

Review the formula for calculating

T (OK)

T1 – the number of years that precede the year

– Unrecovered cost (beginning-of-year

N – cash flow per year

**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*.2

For a better understanding study the method of calculating

**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%.3

Use a method of calculation based on a provisional assessment of cash flow. The fact that a simple static approach indicates that given as an example, the project will pay back in 2 years and 6 months. But this

**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*.4

Calculate the discounted cash flow revenues for the project. The proceeds from the discount rate and the period when the income arises.

5

Calculate the accumulated cash flow, which will be the simple sum of costs and flow of revenues on the investment project.

6

Accumulated discounted cash flow to calculate the first value with a positive status.

7

Define

**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.Note

Payback period it is recommended to rely on projects that are financed by long-term commitments. The result of calculations payback period should not be less than the period of use of borrowed funds, which is set loan agreement.