Renovation Cash-Flow Payback Calculator

How the renovation cash-flow payback calculator works

Upfront economic cost is capital outlay plus entered contribution forgone during disruption. Do not enter lost revenue again as lost contribution if its avoided variable costs were already removed. Annual net gain equals incremental revenue less incremental variable cost and added maintenance.

Simple payback divides upfront economic cost by positive constant annual gain. NPV discounts annual gains at year ends over the entered horizon and subtracts the upfront amount. The sufficient annual contribution before maintenance covers the discounted upfront cost and added maintenance, rounded upward to cents. This constant-gain calculation does not predict when an actual invoice will be collected.

Revenue gains, costs and the discount rate are user assumptions. Property appreciation, occupancy improvements, tax effects, finance and residual value are not supplied. Zero or negative annual gain has no finite simple-payback ratio, and a favorable scenario is not an assurance the renovation is worthwhile.

Worked example

Capital outlay of 50,000 plus 10,000 forgone contribution gives 60,000 upfront economic cost. Annual revenue gain of 30,000 less 10,000 variable cost and 2,000 maintenance gives 18,000 annual net gain. Five zero-discount years give NPV 30,000 and simple payback about 3.333 years. Raising maintenance to 3,000 lowers NPV to 25,000.

Sources and assumptions

The source material explains the underlying calculation or pricing structure. Entered prices, costs, schedules and scenario choices are your assumptions; this tool does not obtain supplier quotes or predict actual results.

• CFI: discounted cash flow formula and terminal assumptions
• NIST: building life-cycle cost analysis