Fuzzy Payback Period of Investment into Modernization of Production Network

Abstract

The difference between the result of managerial calculations and reality can be largely attributed to uncertainty. In the case of discounted payback period (DPP), it concerns uncertain capital expenditures, positive cash flows, and discount rates. To resolve this problem the intervals of possible values instead of uncertain point values should be regarded. This idea is projected in defining the significant points of the input parameters for the DPP calculation from which the significant points of the fuzzy payback period (FPP) in the sense of triangular fuzzy numbers (TFN) are derived. For the TFN ranking, the weighted method is used. The FPP numerical formula thus becomes flexible in terms of the possibility of expressing faith in the incidence rate of the input data. The existing literature omits to regard negative weights for positive and/or negative cash flows in the FPP calculation. In the application, the relations are applied to the quantification of the FPP interval of possible values, by means of which the investment plan for the modernization of the lignite power plant is evaluated.

Investing in Renewable Energy: Decarbonizing Power Plant Industry with the Feasibility Study of Mini-Hydro Project

“…The discounted payback period takes into account the time value of money and is calculated by determining the time it takes for the discounted cash inflows to equal the initial investment (Dai et al, 2022). Other methods for calculating the payback period include probabilistic approaches and fuzzy-set-based evaluation (Kim et al, 2013;Kotsyuba, 2020;Hašková et al, 2022). If the project's payback period < the payback period of investment funds, then the business is feasible to run.…”