Cumulative Payback and After Tax Cash Flow (Commercial, PV)

I have read the help information on Cumulative Payback and After Tax Cash Flow, however it was not of much help. For example it seems to say that the After Tax Cash Flow is the net cash flow, but is all cash positive and negative included in these cash flow calculations which arrive at the net cash flow? What is included and what is not?

If all of the cash flow positive and negative is included in the After Tax Cash Flow, then why is the Cumulative Payback needed?

What is included in the Cumulative Payback that is not included in the After Tax Cash Flow?

When I do a simple payback calculation on my own, the payback is similar to the After Tax Cash Flow where it changes from negative to positive. The Cumulative Payback is almost double the number of years compared to my simple payback and the After Tax Cash Flow when it turns positive. So I am inclined to think that what I am used to people calling the payback on a pv system is more likely reflected by the After Tax Cash Flow rather than the Cumulative Payback, but I am not sure of that. Is this true?

Please explain to me in more detail than it does in the help information, what are the differences between the After Tax Cash Flow and the Cumulative Payback, and which should I be telling a client is the payback on the system?

Thank you,
Lotus

In SAM, the payback period (residential and commercial projects only) is the number of years it takes for project savings to equal the initial project investment, not including the cost of debt.
For the payback period calculation, project savings include the value of electricity generated by the system and incentives less operating expenses and taxes. The project investment is the total installed cost less any investment- or capacity-based incentives. For each year after the project is installed:
Payback Cash Flow = Energy Value * (1 - Effective Tax Rate)

+ State Tax Savings

+ Federal Tax Savings

+ Total PBI

- Total Operating Expenses

- Debt Interest * Effective Tax Rate
The cumulative payback cash flow shows the payback cash flow as it accumulates from year to year. That value is necessary to determine the time in years when the accumulated savings are equal to the initial investment amount (in year zero).
For residential and commercial financing, SAM also shows four cash flows in the base case cash flow table.
The after-tax cash flow is similar to the payback cash flow, but accounts for debt costs (not just tax on debt interest), and is the cash flow that SAM uses to calculate the LCOE and NPV:
After Tax Cash Flow = Energy Value * (1 - Effective Tax Rate)

+ State Tax Savings

+ Federal Tax Savings

+ Total PBI

- Total Operating Expenses

- Total Debt Payment
Best regards,

Paul.

We've posted Excel workbooks showing how SAM calculates the payback period on the Financial Models page .

To use the workbooks, first download the version for the type of project you are modeling (residential with standard loan, residential with mortgage loan, or commercial). Then, copy the cash flow table from SAM's Results page and paste it into the second worksheet in the appropriate workbook. The first worksheet shows the payback period (it should match the value in SAM's Metrics table) with formulas and text explaining the calculation.

Best regards,
Paul.

Paul, so with which one of the NPV values should be calculated the IRR of the project?.

Kind Regards.

For the Utility IPP, Commercial PPA, and Single Owner financing options, SAM calculates the project IRR using the after-tax cash flow: The IRR is the discount rate that results in the NPV of the after-tax cash flow being zero.

For the All Equity Partnership Flip, Leveraged Partnership Flip, and Sale Leaseback financing options, SAM calculates an IRR for each of the project partners or parties using the after-tax returns (reported in the cash flow table) for each partner.

Best regards,
Paul.

Thank you Paul,
can you direct me to the excel workbooks you noted on 2012-10-11? I have gone through the downloads and resources pages as well as general google searches for them. The program is very thorough, and I'm glad to see all the available inputs and variables. I know it is basic, but the cumulative cash flow would add a useful metric to the graphing for non-finance clients.

Thanks!
Luke