KEVOS® MAKEOS · Money
Equipment Investment Appraisal (NPV, IRR, Payback, B/C, EUAC)
Does buying this machine pay for itself: what are its net present value, rate of return, payback, benefit–cost ratio and equivalent annual cost?
Appraisal of an equipment purchase with uniform yearly savings and running cost: net present value of the cash flows and salvage at your interest rate, internal rate of return by search (as the IRR tool), simple and discounted payback, the benefit–cost ratio (as the benefit–cost ratio tool), and the equivalent uniform annual cost of owning and running the machine using the capital recovery factor (as the interest factors tool).
Open the calculatorRuns in your browser. No account needed.
How this tool works
Inputs, units and where to find them
| Input | Unit | Typical source |
|---|---|---|
| Purchase and installation cost | $ | Total first cost including installation and commissioning. |
| Savings or extra income per year | $/yr | Yearly savings or added income the machine brings. |
| Running cost per year | $/yr | Yearly running cost (maintenance, power, consumables) of the machine. |
| Salvage value at the end | $ | Resale or scrap value at the end of the life. |
| Life | years | Years the machine is expected to serve. |
| Interest (hurdle) rate | % | Interest rate or minimum acceptable rate of return. |
| Longest payback accepted | years | Longest simple payback your business accepts. |
Method and formulas
- Net yearly flow A = savings − running cost; NPV = −P + A (P/A, i, n) + salvage (P/F, i, n).
- IRR: the rate that makes NPV zero, found by bisection (as the IRR tool).
- Simple payback = P ÷ A; discounted payback = first year the discounted cumulative flow turns positive.
- B/C = PV of savings ÷ (P + PV of running cost − PV of salvage) (as the benefit–cost ratio tool); EUAC = (P − salvage)(A/P, i, n) + salvage i + running cost.
- Example: NPV 21,874 at 8%, IRR 14.619%, payback 4 years, B/C 1.1873.
Limitations
- Before tax and inflation; tax depreciation and price changes alter the result.
- Uniform yearly flows; uneven flows need the IRR tool directly.
- Example values are illustrations. Replace them with values for your actual task.
Typical uses
- Justify a new machine or automation project
- Compare a purchase against a hurdle rate
- Present a capital request with the usual measures
Who it is for
- Engineering managers
- Business owners
- Finance analysts
What you get
- Net present value and internal rate of return
- Simple and discounted payback
- Benefit–cost ratio and equivalent annual cost
Interpreting the result
- A positive NPV at the hurdle rate means the project earns more than the hurdle; payback alone ignores later years.
References
- Machinery’s Handbook, 29th edition (Industrial Press, 2012), printed pp. 139–146. Topic reference; no source tables or recommended settings are reproduced.
WORKOS tools are screening and decision-support utilities. Verify important financial, engineering, safety, legal or operational decisions using appropriate professional standards and your organisation’s approved data.
Open the Equipment Investment Appraisal (NPV, IRR, Payback, B/C, EUAC) calculator
