- 40 -



2.6.2.1
Payback


         This is a fairly simple technique which accumulates net income

from the new asset until it reaches the capital outlay, e.g.:


Year Net income Cumulative
Income
1971 494     494    
1972 642     1,136    
1973 750     1,886    
1974 879     2,765    
1975 1,121     3,886    
1976 1,530     5,416    
1977 1,433     6,849    



and so on until the outlay of £22,329 is reached, the number of years

then elapsed is the payback period and should that period be shorter

for one church than another, there comes available a criterion for de-

ciding which church to tackle next.


2.6.2.2
Net present value


         This technique takes payback one stage further by incorporating

cash flows occurring beyond the end of the payback period. To use this

technique it is necessary to know or assume the expected life of the

building, and the actual or notional rate of interest incurred on the

capital employed. Since the Church normally does not borrow to finance

building programmes this latter will be difficult to ascertain because,

in effect, it will be the interest foregone by not investing the capital

elsewhere. But assuming this problem can be overcome, then the net

present value is obtained from the formula:

Previous Contents Next