Investment Payback: How to Calculate How Long Until You Break Even

Buying a machine is an investment, and how quickly it pays back is what owners care about most. Below we demonstrate the calculation and the items to include. All numbers are assumptions, used only to illustrate the method; they don't represent any machine's price or a guaranteed payback period, and they are not financial or investment advice. Please discuss actual decisions with your accountant.

How to Calculate How Long Until a Machine Pays Back

The most common method is the "simple payback period":

Payback period (months) = total investment ÷ monthly net benefit

• Total investment: all the money paid out up front to get the machine into production.
• Monthly net benefit: the benefit the machine brings each month, minus the additional costs it adds each month.

Which Costs Should Be Included?

One-time outlays (total investment):

• The machine itself and optional parts (dies, nozzles).
• Shipping, rigging and moving, installation and commissioning.
• Electrical upgrades: running new circuits, changing breakers, applying for three-phase power (see Power Requirements).
• Peripheral equipment: worktables, product trays, carts, conveyors.
• Site modifications: drainage, flooring, partitions (see Factory Planning).
• Ingredients consumed during trial runs and staff training time.

Ongoing monthly costs:

• Electricity (power × actual running hours × load ratio × electricity rate).
• Maintenance, wear part replacement, repairs.
• Water, detergent, and labor hours for cleaning.
• Monthly interest if financed or paid in installments.

Monthly benefits:

• Labor cost saved (labor hours × cost per labor hour including labor and health insurance; for the method, see How to Calculate Labor Savings).
• Additional gross profit from higher output (extra volume sold × gross profit per piece).
• Reduced ingredient waste from consistent weight, and reduced losses from fewer defects.

Hypothetical Example

All of the following figures are assumptions:

• Total investment: machine and peripherals, installation, and electrical upgrades totaling NT$A.
• Labor saved per month: 10 labor hours/day × 26 days × NT$250 = NT$65,000.
• Extra gross profit per month: NT$15,000.
• Additional monthly costs: electricity, maintenance, and consumables totaling NT$8,000.
• Monthly net benefit: 65,000 + 15,000 − 8,000 = NT$72,000.

Payback period = A ÷ 72,000 (months). If A is NT$1,440,000, the payback period is 20 months; if orders drop or the labor isn't actually saved, the payback period gets longer. We recommend building a table with three scenarios, "optimistic, typical, and conservative," to see whether the worst case is acceptable.

The simple payback period doesn't account for the time value of money. For large investments over long periods, you can ask your accountant to evaluate them using net present value (NPV) or internal rate of return (IRR).

How Is Depreciation Calculated?

Depreciation is how accounting and tax spread a machine's cost over its useful life. It doesn't affect actual cash outflow, but it does affect book profit and income tax.

• Article 51 of the Income Tax Act (所得稅法) lists the depreciation methods that may be used: straight-line, declining balance, sum-of-the-years'-digits, units-of-production, working-hours, or other methods approved by the competent authority.
• Service life is determined by the Ministry of Finance's "Fixed Asset Service Life Table" (固定資產耐用年數表), and except where specially shortened under government incentives, may not be shorter than the minimum life specified in the table.

The most common is the straight-line method: annual depreciation = (acquisition cost − estimated salvage value) ÷ service life. Which category your machine falls into and how many years apply should be determined by your accountant based on the service life table.

Investment Tax Credits

Article 10-1 of the Statute for Industrial Innovation (產業創新條例) provides that from January 1, 2025 to December 31, 2029, when a company or limited partnership invests in brand-new smart machinery, AI, energy-saving and carbon-reduction items, and the like for its own use, with total spending in the same tax year of at least NT$1 million and no more than NT$2 billion, it may choose either to credit 5% of that year's spending against business income tax, or to credit 3% per year over three years, with the annual credit capped at 30% of the income tax payable that year. "Smart machinery" has statutory technical element requirements, and ordinary food machinery may not qualify; see Smart Machines and Data Collection for details, and confirm with your accountant before applying.

How Dong-Yih Machinery Can Help

The benefit side of the payback calculation depends on real output and labor hours. For quotes and suitable products for Dong-Yih Machinery models, call us (06-257-4644).

FAQ

Q: Roughly how long does it take for a machine to pay back?
A: There's no universal number. Divide total investment by monthly net benefit, calculating the benefit from your own labor hours and output.

Q: Is it enough to count only the machine price as total investment?
A: No. Also add shipping and installation, electrical upgrades, peripheral equipment, site modifications, and training.

Q: How many years should depreciation use?
A: It's determined by the Ministry of Finance's Fixed Asset Service Life Table; have your accountant determine which category the machine falls into.

Q: Can buying food machinery reduce my taxes?
A: Article 10-1 of the Statute for Industrial Innovation offers an investment tax credit, but the items must meet statutory requirements such as those for smart machinery, and ordinary machines may not qualify.