When calculating payback period of a project, should the salvage value be included?
If you are calculating payback period of a project, you have calculated the cost saving per unit of production with the cost of improving the procedure . If for example if 100 pieces are produced daily at a savings of $1.00 per unit the improvment saves $ 100. daily . The cost of implementing the procedure was $ 30,000. The cost would have been recovered in 300 working days, If parts of an inline process were improved with new equipment some may reduce the cost by the salvage value of the part which was replaced. Ordinarily the calculation is done prior to the improvement of a process and unless salvage value is quite significant it is not included in the payback calculation.
