Irrigation Return on Investment Calculator

Simple payback just divides system cost by year-one net benefit, treating every future dollar as equal to a dollar today. Discounted payback instead runs the year-by-year cash flow through your discount rate before checking when cumulative cash flow turns positive, so each future year's benefit counts for less than its face value — which necessarily pushes the break-even point later. If your discount rate is 0%, the two will converge; the higher the discount rate, the bigger the gap between them.

Both the annual gross benefit and annual maintenance cost are grown at the same inflation rate each year before being discounted, so inflation doesn't change the net benefit's proportions — it scales both sides up together. What it does affect is the absolute dollar size of each year's net cash flow, which grows faster than a flat projection would, so a higher inflation assumption modestly increases both NPV (since nominal future benefits are larger) and the computed IRR, holding the discount rate constant.

The discount rate should reflect your opportunity cost of capital — what you could earn investing that money elsewhere, or what it costs you to borrow it. Because NPV discounts every future year's cash flow by (1 + rate) raised to that year's power, a system with a long lifespan and its benefits weighted toward later years is disproportionately sensitive to this input; raising the discount rate from 6% to 10% will shrink NPV more than a proportional amount, so it's worth testing a couple of rates rather than trusting a single assumption.

NPV tells you the absolute dollar value created above and beyond system cost, while benefit-cost ratio tells you how many dollars of present-value benefit you get per dollar of present-value cost — a ratio above 1.0 means the investment is worthwhile in relative terms. A very large system can show a healthy benefit-cost ratio (say 1.3) but a modest NPV in dollar terms if the system cost itself is small, while a bigger system might post a lower ratio but a much larger NPV simply because it operates at greater scale.