Payback Period Calculator

The Payback Period Calculator can calculate payback periods, discounted payback periods, average returns, and schedules of investments.

Fixed Cash Flow

Initial Investment
Cash Flow		/Year
Increase Decrease		/Year
Number of Years
Discount Rate

Irregular Cash Flow Each Year

Initial Investment   Discount Rate     Cash Flow Year 1. Year 2. Year 3. Year 4. Year 5. Year 6. Year 7. Year 8. Show More Input Fields Year 9. Year 10. Year 11. Year 12. Year 13. Year 14. Year 15. Year 16. Year 17. Year 18. Year 19. Year 20. Year 21. Year 22. Year 23. Year 24. Year 25. Year 26. Year 27. Year 28. Year 29. Year 30. Year 31. Year 32. Year 33. Year 34. Year 35. Year 36. Year 37. Year 38. Year 39. Year 40. Year 41. Year 42. Year 43. Year 44. Year 45. Year 46. Year 47. Year 48. Year 49. Year 50. Year 51. Year 52. Year 53. Year 54. Year 55. Year 56. Year 57. Year 58. Year 59. Year 60. Year 61. Year 62. Year 63. Year 64. Year 65. Year 66. Year 67. Year 68. Year 69. Year 70. Year 71. Year 72. Year 73. Year 74. Year 75. Year 76. Year 77. Year 78. Year 79. Year 80. Year 81. Year 82. Year 83. Year 84. Year 85. Year 86. Year 87. Year 88. Year 89. Year 90. Year 91. Year 92. Year 93. Year 94. Year 95. Year 96. Year 97. Year 98. Year 99. Year 100.

Related

Investment Calculator | Average Return Calculator

Cash Flow

Cash flow represents all cash and cash‑equivalent movements into and out of a project, person, company or other entity. When cash inflows—such as sales revenue or receivables—exceed outflows, the entity’s liquid assets grow. Conversely, payments for expenses, rent, taxes and the like reduce cash holdings. Typically cash flow is reported as the net result of all positive and negative cash movements over a period, which is exactly what our calculator does. Monitoring cash flow gives a quick picture of solvency; a healthy cash reserve generally signals good financial condition for both individuals and organisations.

Discounted Cash Flow

Discounted cash flow (DCF) is a valuation technique that estimates the worth of an investment by applying the time‑value‑of‑money principle, which holds that a dollar today is worth more than a dollar tomorrow. Future cash streams are brought back to the present using a discount factor, yielding a present‑value figure that helps decide if the project is attractive. In DCF calculations the discount rate is often the weighted average cost of capital (WACC), which blends the costs of each financing source—equity, debt, etc.—according to their proportion in the capital structure. Because WACC reflects the true opportunity cost of capital, analysts frequently prefer it over a generic discount rate when performing detailed cash‑flow analysis.

Discount Rate

A discount rate can be thought of as the opposite of an interest rate: it is applied to future cash receipts to calculate their present value. For instance, an investor may compute the net present value (NPV) of a prospective investment by discounting expected cash inflows at an appropriate rate. This is akin to asking how much must be invested today, at that rate, to generate the same future cash flows. The discount rate therefore allows cash flows occurring at different times to be expressed in a common, present‑day unit for easy comparison.

Payback Period

The payback period measures how long it takes for an investment’s cash inflows to recover the initial outlay, reaching a break‑even point where cumulative inflows equal cumulative outflows. For example, a $2,000 start‑up cost that yields $1,500 after the first year and $500 after the second year results in a two‑year payback. Generally, the shorter the payback horizon, the more attractive the project, while longer payback times tend to be less appealing.

Because it is simple to calculate, the payback period is a popular way to gauge investment return, but it ignores the time‑value of money. Therefore, it should be used alongside other, more comprehensive metrics.

The formula to calculate payback period is:

Payback Period =

Initial investment Cash flow per year

As an example, to calculate the payback period of a $100 investment with an annual payback of $20:

$100 $20

= 5 years

Discounted Payback Period

A key drawback of the standard payback period is its disregard for the time‑value of money. The discounted payback period (DPP) overcomes this by using the net present value of cash flows to determine when the break‑even point is reached. Unlike the plain payback, DPP takes into account not only the amount of cash flows but also when they occur and the prevailing market return, i.e., the point where the cumulative NPV becomes zero. DPP is useful for assessing profitability: if the discounted payback is shorter than the asset’s useful life or a predefined horizon, the investment is considered viable; if it exceeds that horizon, it is usually rejected. When comparing projects, those with a lower DPP are generally more attractive because they recoup their cost sooner.

The formula for discounted payback period is:

Discounted Payback Period =

- ln(1 -  investment amount × discount rate cash flow per year ) ln(1 + discount rate)

Below is a sample calculation of the discounted payback period using the same figures as the simple payback example. With a $100 investment that returns $20 each year and a discount rate of 10 %, the NPV of the first $20 cash inflow is:

$20 1.10

= $18.18

The NPV of the second payback is:

$20 1.102

= $16.53

The subsequent term in the series uses a denominator of 1.10³, and the pattern continues as needed. For this particular case, the break‑even point occurs at:

DPP =

- ln(1 -  $100 × 0.10 $20 ) ln(1 + 0.10)

= 7.27 years

The discounted payback period of 7.27 years is longer than the 5 years as calculated by the regular payback period because the time value of money is factored in.

Typically, the discounted payback period exceeds the ordinary payback because later cash flows are discounted more heavily. Both methods can provide insight, but they omit considerations such as risk, alternative opportunities, or overall market volatility. It is advisable to complement them with additional indicators like DCF analysis or the internal rate of return (IRR), which is the discount rate that sets the NPV of all cash flows to zero.

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