Capex Formulas

How to Calculate Capex ROI, Payback, and Portfolio Value for Manufacturing Projects

The core capital-project formulas every manufacturing engineer runs, worked end to end with real dollar figures, months, and where each input comes from.

Start with capex ROI, the anchor metric. ROI equals net lifetime benefit divided by total installed capital, expressed as a percent. Take a robotic cell quoted at 480,000 dollars equipment plus 120,000 dollars install, rigging, and controls integration for 600,000 dollars installed. If it removes 2.5 operators at a fully burdened 68,000 dollars per year and cuts scrap by 90,000 dollars annually, gross annual benefit is 260,000 dollars. Over a 7 year life that is 1,820,000 dollars gross, minus 210,000 dollars in maintenance and spares, giving 1,610,000 dollars net. ROI equals 1,610,000 divided by 600,000, or 268 percent lifetime. The Capex ROI calculator runs this in one screen.

Payback period is the blunt instrument every approver asks for first. Simple payback equals installed capital divided by annual net cash benefit. Using the cell above, annual net benefit is roughly 260,000 minus 30,000 dollars maintenance, or 230,000 dollars per year, so payback equals 600,000 divided by 230,000, which is 2.6 years, about 31 months. Most plants set a hurdle of 24 to 36 months for discretionary automation, so this clears. The Project Payback calculator handles uneven cash flows too, where you subtract each year's benefit from the remaining balance until it crosses zero mid-year.

For anything past roughly 3 years, use discounted metrics so a dollar in year 5 is not counted like a dollar today. Net present value sums each year's net cash flow divided by (1 plus the discount rate) raised to the year number, then subtracts the initial capital. At a 12 percent weighted cost of capital, year one's 230,000 dollars is worth 205,357 dollars, year two 183,355 dollars, and so on. Summing seven discounted years gives about 1,050,000 dollars, minus the 600,000 dollars outlay, for an NPV near 450,000 dollars. Positive NPV means the project beats the 12 percent hurdle; the internal rate of return here lands around 37 percent.

To rank a competing slate of requests, compute a Project Portfolio Value that normalizes each project so a 90,000 dollar upgrade and a 4 million dollar line stand on equal footing. A common form is NPV multiplied by a strategic weight, then divided by capital consumed, giving value per dollar deployed. A project with 450,000 dollars NPV on 600,000 dollars of capital returns 0.75 dollars of value per capital dollar; one with 1.2 million dollars NPV on 4 million dollars returns 0.30. The Project Portfolio Value and Capital Request Score calculators turn these ratios into a single sortable list under a fixed budget.

Project risk deserves a real number, not a color. Score risk as a weighted sum across four to six factors, each rated 1 to 5, times a weight that totals 1.0. Weight technical maturity 0.30, schedule 0.25, supplier 0.20, integration 0.15, and regulatory 0.10. A greenfield process at technical 4, schedule 4, supplier 3, integration 5, regulatory 2 yields (4 times 0.30) plus (4 times 0.25) plus (3 times 0.20) plus (5 times 0.15) plus (2 times 0.10), which is 1.2 plus 1.0 plus 0.6 plus 0.75 plus 0.2, or 3.75 of 5. The Project Risk Score calculator standardizes these weights across the portfolio.

Delay cost converts a slipped schedule into dollars so it competes with capital for attention. Daily delay cost equals lost throughput margin plus idle labor plus carrying cost on capital already spent, per day. If a line generates 18,000 dollars per day of contribution margin at full run, holds 8 people at 320 dollars per day fully burdened, and sits on 600,000 dollars of capital at 12 percent (197 dollars per day interest), a one day slip costs 18,000 plus 2,560 plus 197, about 20,757 dollars. A six week slip is 30 working days, or roughly 623,000 dollars. The Project Delay Cost calculator sums these components per project.

Two inputs quietly decide every result above, so source them carefully. Fully burdened labor is base wage times about 1.35 to 1.55 for benefits, payroll tax, and supervision, not the raw hourly rate; using 22 dollars per hour instead of 32 dollars understates a two operator saving by 42,000 dollars a year. Installed capital must include freight, rigging, foundations, electrical, controls, and validation, typically adding 20 to 35 percent over the equipment quote. Pull benefits from the same cost accounting system that will later report the results, or your Project Benefit Realization check will never reconcile.

Close the loop with benefit realization, which compares booked savings against the number you promised at approval. Realization equals actual annual benefit divided by forecast annual benefit, as a percent. If you approved 260,000 dollars and the line now delivers 205,000 dollars, realization is 79 percent, and the effective payback stretches from 31 to about 39 months. Run this at 6 and 12 months post-startup using the Project Benefit Realization calculator, because a 79 percent realization rate applied portfolio-wide silently erodes every ROI and NPV you presented, and it is the single number auditors and CFOs trust most.

Published 2026-07-01.