NIP gives quick gauge on when is the breakeven

• NIP Private or Broken Links
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  is basically the sum of undiscounted net cashflow from asset first investment up to current year.

• It’s a useful indicator for management to quickly gauge how far are we to breakeven (at NPV0)

  • While payback period tells exactly when the breakeven is, it is also dependent on the cashflow assumptions. NIP gives better insight on breakeven in uncertain forecast given that management have range of expected average annual net cashflow
  • At the surface, it may serve similar purpose as breakeven year. However, NIP can give the sense of magnitude as a quick guide as to which asset is more graving to be “saved”

References

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• https://corporatefinanceinstitute.com/resources/knowledge/modeling/payback-period/
• https://www.investopedia.com/terms/p/paybackperiod.asp#:~:text=The%20term%20payback%20period%20refers,payback%20period%20is%20so%20important.

Metadata

• topic:: 00 Engineering Economics00 Engineering Economics
  #MOC / for economics notes with focus on petroleum fiscal and engineering
  
• updated:: 2022-04-01 Private or Broken Links
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• reviewed:: 2022-04-01 Private or Broken Links
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• #PermanentNote
  • expand further to relate to NPV
  • add Payback literature note for backlinking