5. Financial Payback & IRR
Evaluate project financial performance at a high level.
Cash-flow assumptions
Initial cost occurs at year zero. Annual savings are treated as constant net cash flow received at each year-end, with residual value at the end of the project.
Simple payback = initial cost ÷ annual cash flow; it excludes residual value. IRR is the annual rate that sets the discounted cash flows to zero. Enter net annual cash flow after operating costs. Inflation, degradation, changing tariffs, tax, financing and incentives are not modelled.