Cash recovery period

Payout time. The payout time is also referred to as the cash recovery period and years to payout. It is calculated by the following formula and is expressed to the nearest one-tenth year ... 

Cash recovery period (see Payout period) Cast-iron pipe and fittings, cost of 509-510 Cellulose acetate butyrate, 436 Centrifugal pumps, 518-521 cost of 526... 

The payback period is the time required for the annual earnings to equal the original investment. Payback period is also called payout time, payout period, payoff period, and cash recovery period. Because it is simple and even more understandable than ROI, PBP is widely used in early evaluations to compare alternatives. Like ROI, the payback period in years has several definitions, but the following is used here. This definition is not consistent with the definition of ROI in Eq. (17.7), because only the depreciable capital is used and the annual depreciation, D, is added back to the net earnings because that depreciation is retained by file company. 

Time Criterion. The term used for this criterion is the payback period (PBP), also known by a variety of other names, such as payout period, payoff period, and cash recovery period. The payback period is defined as follows ... 

S.4.2 Payout Period, Payback Time, or Cash Recovery Period... 

The ways of assessing profitabihty to be considered in this section are (1) discounted-cash-flow rate of return (DCFRR), (2) net present value (NPV) based on a particiilar discount rate, (3) eqmvalent maximum investment period (EMIP), (4) interest-recovery period (IRP), and (5) discounted breakeven point (DEEP). 

The levelized prices of PV electricity and H2 are derived by net present value cash flow analysis. The net present value cash flow method is described in Appendix A.l. A straight tine, ten-year depreciation schedule is applied with an annual depreciation rate of 9% of capital. The levelized PV electricity and H2 prices are derived by choosing PV electricity and H2 prices to generate a revenue level that results in a cumulative, net cash flow stream with a 0 net present value over the thirty-year capital recovery period. The annual net cash flow streams are discounted at the present value of the 6%-discount rate. Investment funds are allocated in year 1 construction occurs in year 2 and H2 cash flow begins in year 3. The modular design of PV electrolysis plants and H2 distribution systems enables the rapid initiation of H2 marketing and cash flow. 

FIG. 9-11 Cumulative cash flow against time, showing interest recovery period. 

A chemical plant with a fixed capital investment of 100 million generates an annual gross profit of 50 million. Calculate the depreciation charge, taxes paid, and aftertax cash flows for the first 10 years of plant operation using straight-line depreciation over 10 years and using MACRS depreciation with a 7-year recovery period. Assume the plant is built at time zero and begins operation at full rate in year 1. Assume the rate of corporate income tax is 35%, and taxes must be paid based on the previous year s income. 

Since all physical assets of an industrial facility decrease in value with age, it is normal practice to make periodic charges against earnings so as to distribute the first cost of the facility over its expected service life. This depreciation expense as detailed in Chap. 9, unlike most other expenses, entails no current outlay of cash. Thus, in a given accounting period, a firm has available, in addition to the net profit, additional funds corresponding to the depreciation expense. This cash is capital recovery, a partial regeneration of the first cost of the physical assets. 

Payback period is widely used when long-term cash flows are difficult to forecast, because no information is required beyond the break-even point. It may be used for preliminary evaluation or as a project screening device for high risk projects in times of uncertainty. Payback period is usually measured as the time from the start of production to recovery of the capital investment. The payback period is the time taken for the cumulative net cash flow from start-up of the plant to equal the depreciable fixed capital investment (Cp - S). It is the value of t that satisfies the equation... 

Payout period is defined as the time required for the recovery of the depreciable capital investment in the form of cash flow to the project. Cash flow would imply the total income minus all costs except depreciation. 

Payback period = Year before full recovery -e (Unrecovered cost at start of the year/Cash flow during the year)... 

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