Finance & AccountingFree
Capital Expenditure Request and Payback
Your purchase priced against carrying on as you are, with the recurring cost the quote leaves out and the one assumption the whole case turns on.
River's capex brief reads the vendor quote and the operating detail sitting behind the decision. It prices two cash streams over the life of the asset: buying the thing, and carrying on as you are. What comes back is a request document with the do-nothing case stated in full, and a sheet carrying payback beside the life-cycle commitment. A third page solves for the assumption the case rests on. The approver gets the number they always ask for: what this costs after the invoice is paid.
Every capital request template on this query is a form with fields for cost, benefit and payback. Kettleridge Fabrication in the worked example put 412,000 on the form and a 2.65 year payback under it. The purchase actually commits 987,526 across seven years, of which 58.3 percent is not on the quote, and the payback is 4.11 years. Nothing in the request was wrong. It stopped at the invoice, and every number the approver has to live with sits after it.
Written for whoever has to get a purchase signed off, and for the finance person who defends it a year later. A deferral gets priced in the cost reduction plan, and the year zero cash lands week by week in the 13 week cash flow forecast. A draw on the revolver moves covenant headroom. The recurring commitment becomes a fixed charge that the annual credit review reads back to you the following spring.
Doing nothing is not free, and it is not flat
Carrying on as you are is a real alternative with a real price, and it is the first one a serious analysis puts a number on. The federal benefit-cost standard is explicit that in evaluating a capital acquisition the analysis should consider doing nothing, direct purchase, upgrading what you already own, or contracting for the service. Kettleridge's do-nothing case costs 155,575 this year: outsourced cutting, expedite freight, plasma repairs, the downtime those repairs cause, consumables and power.
It also gets worse every year, which is the half nobody models. The outsourcing vendor has raised twice in three years. Repairs accelerate as a table ages, from 14,800 this year to 43,000 in year seven, and unplanned stoppages climb with them from six a year to sixteen. The same do-nothing case costs 237,077 in year seven, up 52.4 percent. Deferring the decision twelve months costs 13,704 before the machine's own price moves at all.
The largest cash item the quote never mentions runs the other way. Equipment acquired and placed in service after 19 January 2025 carries a 100 percent first-year depreciation allowance, so 486,300 of basis deducts at once. At a 29 percent blended owner rate that is 141,027 of cash inside year one, which is 34.2 percent of the quote. It pulls payback from 5.36 years to 4.11, and it is the one line a request should never leave out.
How it works
Add the quote
The vendor quote and anything already priced beside it, including freight, installation and training.
Add today's cost
What the current arrangement costs you, including the repairs and the downtime nobody bothers counting.
River prices both
Two streams across the ownership horizon, with the recurring commitment and the tax cash included.
Take the request
The document, the payback sheet, and the one assumption your approver will want solved for.
What you get
- The quote restated as year zero cash, with every one-time item it leaves off
- Recurring cost of ownership priced year by year: service, licenses, consumables, power, tax
- The do-nothing case priced as a stream that escalates, not as a flat line or a zero
- First-year depreciation cash at your own rate, because it moves payback by more than a year
- Payback bridged from the figure in the request to the figure that survives a review
- The assumption the case rests on, solved for the value at which it stops working
Common questions
Why price the do-nothing case if we have already decided?
Because the approver will ask, and because it changes the answer. Doing nothing at Kettleridge costs 155,575 this year and 237,077 in year seven, so the case gets stronger the further out you look. A saving measured against zero overstates year one, understates year seven, and ranks wrongly against the other requests on the same list.
What recurring costs does a vendor quote usually omit?
The ones that start when the warranty ends. A service contract priced off the machine, a software seat that becomes a subscription, gas, consumables, spares and power. Kettleridge's laser draws 110,682 kilowatt hours a year, which at the 2025 industrial average of 8.62 cents is 9,541. Together they run 77,515 a year against a 412,000 quote.
Is payback the right measure to put in front of a board?
It is the measure boards ask for, and it ignores everything after the payback date, so you get both. Kettleridge pays back in 4.11 years on a seven year asset and carries 167,339 of present value at its own borrowing rate. Payback alone hides that the last two years are most of the return.
How does it handle the tax effect of the purchase?
At your own marginal rate, on the basis that actually qualifies. Kettleridge deducts 486,300 in the first year, being the machine plus rigging, the chiller and the electrical service upgrade, and gets 141,027 back at 29 percent. Training and disposal are deductible anyway. Leaving the whole thing out lengthens payback by 1.25 years.
Which assumption should the sensitivity actually test?
The one that dominates, rather than the usual three. The federal standard puts it plainly: the assumptions deserving most attention depend on the dominant cost elements and the areas of greatest uncertainty. Here it is how much outsourced work the machine can really take in house. Below 74.3 percent the purchase stops creating value, and the request assumed 100.
What if the honest answer is that we should not buy it?
Then the paper says so and you have saved the money. Kettleridge's case works at full migration and has no payback at all below 59.0 percent, so the useful version names the condition rather than the conclusion. Either way it lands in the board slide as a decision with its arithmetic attached. If the plan it was budgeted into is under review, the reforecast test settles that first.
Capital Expenditure Request and Payback
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