Payback period (PBP) is a profitability measure and it is defined as the time required for annual earning to be equal to the original investment.

PBP=Total Investment/Yearly Earning

Once you have operating and capital cost estimated, you can get the estimates of total investment and total earnings. Consult any of the process/plant design books to estimates these numbers. For example see chapter 17 in Product and Process Design Principles book by Daniel R. Lewin, J. D Seader, and Warren D. Seider.

Hope this helps.

Best,

M. Tahir

Thank you M. Tahir for the guideline.

To complement M.Tahir's concise answer, the item that seems to be missing from your problem statement is the positive cash flow (earnings). This income is what justifies the outlay in capital and operating expenditure. The larger are the earnings, the shorter is the payback period. Only after the payback period is the project operating profitably. To do the analysis more thoroughly, future earnings (and also future operating costs) can be 'discounted' to reflect that money in the hand today has a higher value than the same number, n years in the future. The discount factor for cash low in year n is 1/(1+i)^n, where i = discount rate. This is all in books such as those recommended by M. Tahir.

I can give you a practical and easy way to do the calculation just using a spreadsheet like excel.

Write in a file a list of annual net flow (Negative: Investment, capital cost, raw materials, operational cost, etc and Positive: earnings of products and by products). Then start adding the flow from the first period so on till you find a positive result. The number of periods give you the answers

Thank you David and thank you Mario :)

Do take into account David Limb's point. Because of the effects of inflation, the net cash earned each year is worth less in real terms than it was worth at the beginning of the investment. If you invest $100 in year one and earn only $10/year, it only takes 10 years to recover the $100 if inflation is zero. In practice, you could have invested the $100 in something else, and perhaps have earned more. If inflation is 5%, how long would it take to recover the $100? Or, turning this around, what would you need to recover per year to break even in only 2, 3 or 5 years for example. So take into account the time value of money.

Hi Manish

I guess you can follow the methodology given in standard textbooks like:

1. Analysis, Synthesis, and Design of Chemical Processes by Turton

2.Plant design and economics for chemical engineers by Timmerhaus