Payback Period Calculator
Calculate how long it takes for an investment to recover its initial cost
Payback Period Calculator
Use our payback period calculator to determine how long it will take for an investment to recover its initial cost through the cash flows it generates.
💼 Cash Flow Type
📊 Result
📊 Cash Flow Analysis
| Year | Cash Flow Cash | Net Cash Flow Net Cash | Discounted Cash Flow Disc. Cash | Net Discounted Cash Flow Net Disc. |
|---|
📚 Understanding Payback Period
Simple Payback Period
The simple payback period is the time it takes to recover the initial investment through cash flows, without considering the time value of money.
Discounted Payback Period
The discounted payback period accounts for the time value of money by applying a discount rate to future cash flows before calculating the payback period.
Decision Making
Generally, investments with shorter payback periods are considered more attractive, as they recover costs more quickly and may be less risky.
What is Payback Period?
Payback period is the length of time required to recover the cost of an investment. It is calculated by dividing the initial investment by the average annual cash flow. The payback period is an important determinant of whether to undertake a project or investment, as longer payback periods are typically less desirable.
While the payback period is useful for evaluating how quickly you can recover your investment, it has limitations. It doesn't account for the time value of money (unless using the discounted method), nor does it consider cash flows that occur after the payback period.
Formulas Used in Calculations
- Simple Payback Period: Initial Investment ÷ Annual Cash Flow
- Discounted Payback Period: Uses the time value of money to discount future cash flows before calculating the payback period
- Return on Investment (ROI): (Annual Cash Flow ÷ Initial Investment) × 100%
- Net Present Value (NPV): Sum of the present value of all cash flows minus the initial investment