Discounted break-even period

It is possible to define different indexes to understand whether a venture will be profitable [13]. Here we consider the discounted break-even period [14]. This index is defined as the time that must elapse after start-up until the discounted cumulative cash-flow repays the fixed capital investment. The discounted cumulative cash-flow is the sum of expenses and gains sustained or earned in the lifetime of a chemical plant. All these sums of money need to be discounted to their present value. 

Figure 8.3-5 shows the discounted cumulative cash-flow as a function of elapsed years. With the assumptions contained in this qualitative discussion, we found that the discounted break-even period is 4 years when the product can be sold at 220 EUR/kg, it is 9 years when the price is 150 EUR/kg, but it is more than 20 years if the price falls to 120 EUR/kg. These results are obtained assuming an inflation rate of 3% per year. 

The payback period is longer when cash flows are discounted. When ranking projects based on these two variants of the payback period method, there can be conflicting rankings. The payback period method is the same as breaking even. The regular payback period method shows when cash flows equal cash outlay. Contrastingly, the discounted payback period method shows when cash flows equal cash outlay plus debt and equity costs. 

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