Payback in Years

[Jayne Mae]

Hello All,

I am trying to calculate payback in years for an estimated replacement and
do not know where to start. I have the following entered in my spreadsheet
but cannot figure out how to make a correct formula for the result. Can
anyone help?

Thanks in advance for your time.
Jayne
REPAIR COSTS VS. REPLACEMENT


Unit

Justification




Previous 12 Mo Cost to Repair $5,406
Expected 12 Mo Cost to Repair $15,000
Total Repair Costs $20,406
Estimated Replacement Cost $40,000
First Year Savings $(19,594)
First Year Less Total Repair Cost $(19,594)

Years to Payback

 

[Sean Timmons]

Not sure what you want to use for calculating. You could take 1 year or 10
years to pay something back. It depends on the amounts of each payment
made....

 

[Jayne Mae]

I am trying to prepare a justification for replacement vehicles in the
capitol budget process. I guess a better way to describe it is I am trying to
compare repair costs verses replacement cost, and to give an estimated
payback in years. Does this make better sense?

My bad for not being clear enough on my first post.

 

[Fred Smith]

You're mixing apples and oranges. You've put two years of repair costs in
one (last year's and this year's), and you haven't factored in the future
repair costs of the new vehicle.

You need to do the following:

1. Cost of new vehicle ($40,000) is PV (present value).
2. Annual savings in repair costs (cost for new vehicle less cost for old
vehicle) is your PMT
3. What is the cost of money (eg, company's internal rate of return, "hurdle
rate", cost to borrow)?

Now feed these three number into the NPER function, and you will have your
payback period.

Regards,
Fred.

 

[Jayne Mae]

Thanks Fred. I will slap away the fruit flies and give it a try