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.