Payback Period Calculator
Work out how long an investment takes to repay itself, discounted or not.
About Payback Period Calculator
The payback period tells you how long it takes to get your investment back. Simple payback ignores the time value of money — a dollar received in year 5 is counted the same as one received today. Discounted payback corrects for this: future cash flows are reduced to their present value before being accumulated. Discounted payback is therefore always equal to or longer than simple payback. Both metrics are most useful as a risk screen: shorter payback = less exposure to uncertainty. Neither measures profitability — a project could have a fast payback but a poor total return. Use IRR and NPV for a complete picture.
Formulas
Simple payback
Payback = Initial investment / Annual cash flow (uniform flows only)
Discounted payback
Discounted payback: find t where Σ PV(cash flows) = Initial investment
- C_t
- Cash flow in year t
- r
- Discount rate
- I_0
- Initial investment
Worked example
With the default values below, Payback Period Calculator returns Simple Payback Period of 4.17. Change any input above and every figure here is recalculated in your browser.
Inputs used
- Initial Investmentminimum 0 $
- 50,000 $
- Annual Cash Flowone of Uniform (same every year), Variable (enter per year)
- Uniform (same every year)
- Annual Cash Flowminimum 0 $
- 12,000 $
- Number of Years to Modelaccepts 1–50
- 10
- Annual Cash Flows (one per line or comma-separated)
- 15000 18000 14000 20000 16000 22000 18000
- Discount Rate (for discounted payback)accepts 0–100 %
- 8 %
Results
- Simple Payback PeriodYears to recover initial investment, ignoring the time value of money.
- 4.17 years
- Discounted Payback PeriodAccounts for the time value of money. Always ≥ simple payback.
- 5.28 years
Step by step
- 1Initial investment= $50,000
- 2Simple payback period= 4.17 yearsTime to recover the initial investment using undiscounted cash flows.
- 3Discounted payback at 8%= 5.28 yearsLonger than simple payback because future cash flows are worth less in today's dollars.
Assumptions and limits
- The result is derived only from the 6 inputs listed above. Anything not among them is not part of the calculation.
- In particular, this calculator does not take inflation or tax into account.
- Figures are rounded for display to 2 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.
- This is an estimate for general information and not professional financial, tax or legal advice. See the full disclaimer for the limits that apply to this kind of calculator.
How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.
Frequently Asked Questions
What is a good payback period?
It depends on the industry and risk tolerance. Equipment purchases in manufacturing often require payback within 3–5 years. Technology investments may need to pay back in 12–18 months due to rapid obsolescence. There is no universal rule — compare against your company's hurdle and against competing investment options.
Why is discounted payback always longer than simple payback?
Discounting shrinks the present value of future cash flows. Each year's contribution toward recovering the investment is smaller in PV terms than its face value, so it takes longer to accumulate enough present value to equal the initial outlay.
What are the limits of payback period as a capital budgeting tool?
Payback ignores cash flows after the payback date — a project that pays back in year 3 but earns nothing after that is treated equally to one that pays back in year 3 and then earns large returns for 15 more years. It also ignores profitability. Use it as a quick liquidity screen, not as a primary decision criterion.
Can I use this for non-annual cash flows?
This calculator assumes annual periods. For monthly or quarterly cash flows, convert: enter the per-period cash flow in the 'annual' field and interpret the result as the number of periods (not years) to pay back.