CALCULATING PAYBACK PERIOD

Formula

Payback Period = Initial InvestmentNet annual savings +

Income

Other considerations Are there additional costs associated

with the project?

Additional Staff Time? Additional maintenance fees? Additional energy costs?

Payback Period ExampleYou are currently spending $15,000/yr in hauling fees to have

cardboard recyled. You learn that if you bale the cardboard, you can get paid market price per ton for the bales. The cost of a baler is $12,000 and the current market price of bales is $80/ton. You produce approximately 100 tons of cardboard per year.

Payback Period = $12,000 = 0.52 year $15,000 + $8000

Payback Period Exercise-LED Retrofit

Calculate Your Current CostsAfter you’ve gathered the information, you can use it to determine the current costs to your business. To calculate the existing energy use in kWh: existing fixture quantity x fixture wattage x hours per year = kWh

` 1000Calculate the total yearly energy costs:

kWh x utility rateCalculate the yearly maintenance costs: total number of lamps x $6 (estimated industry average)

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Payback Period Exercise-LED Retrofit

Calculate the Proposed System's Costs1) Determine how much energy the proposed LED system will use in kWh per year: kWh= proposed fixture quantity x LED fixture wattage  x hours per year 10002) Find the total yearly energy cost for the proposed LED system: Total Yearly Energy Cost =kWh x utility rate3) Calculate the installation costs of the new system: Installation Cost = proposed fixture quantity x installation cost per fixture4) Calculate the total fixture cost: proposed fixture quantity x proposed fixture cost5) The total cost for the proposed LED system is determined by: total installation cost + total fixture cost