Payback Period Calculator
Calculate how long it takes to recover your investment
Investment Details
Payback Results
Cash Flow Analysis
Disclaimer
These calculations are for informational purposes only and should not be the sole basis for investment decisions. Actual payback periods may vary based on market conditions, cash flow variations, and other factors. Please consult with financial advisors for comprehensive investment analysis.
What is Payback Period?
Payback period is a capital budgeting method that calculates the time required to recover the initial investment from the cash flows generated by the investment. It's one of the simplest methods to evaluate investment projects.
Our calculator provides both simple payback period (without considering time value of money) and discounted payback period (considering discount rate) to give you a comprehensive analysis.
How to Use Payback Period Calculator
Enter your initial investment amount in dollars
Input the expected annual cash flow from the investment
Set the discount rate (cost of capital or required rate of return)
View both simple and discounted payback periods with detailed breakdown
Payback Period Formula
The payback period calculation uses these formulas:
Simple Payback Period:
Discounted Payback Period:
Calculate cumulative present value until it equals initial investment
Frequently Asked Questions
What is a good payback period?
Generally, shorter payback periods are better. Most businesses prefer payback periods of 3-5 years, but this varies by industry and risk tolerance.
What's the difference between simple and discounted payback?
Simple payback ignores time value of money, while discounted payback considers the discount rate, providing a more accurate assessment of investment recovery time.
What are the limitations of payback period?
Payback period doesn't consider cash flows after the payback point and may not reflect the overall profitability of an investment. Use it alongside other metrics like NPV and IRR.
How do I choose the right discount rate?
Use your company's cost of capital, required rate of return, or the rate of return from alternative investments with similar risk profiles.