Payback Period Calculator
Calculate how long it takes to recover an investment. Supports uniform annual cash flows or custom year-by-year flows, with both simple and discounted payback period.
Investment Details
Results
| Year | Cash Flow | Cumulative | PV of CF | Cumulative PV |
|---|
Frequently Asked Questions
The payback period is the time it takes for an investment to recover its initial cost from the cash flows it generates. A $50,000 investment returning $12,500/year has a 4-year payback. It's widely used as a risk proxy: shorter payback means lower exposure.
Simple payback treats all cash flows at face value regardless of when they occur. Discounted payback adjusts each year's cash flow to present value using a discount rate. Discounted payback is always ≥ simple payback. If the discount rate is 0%, they are identical.
Common benchmarks: under 3 years (excellent), 3–5 years (acceptable for most businesses), 5–10 years (needs strong strategic case), over 10 years (typically requires special justification). Industry norms vary: tech projects may require <2 years; infrastructure can tolerate 15–20 years.
Payback period ignores cash flows after recovery — a project paying back in 3 years with 20 more profitable years looks identical to one that pays back in 3 years and stops. It also ignores the time value of money (simple version). Always use NPV and IRR alongside payback for full investment analysis.
Payback Period Formula
Simple payback period (uniform flows): Initial Investment ÷ Annual Cash Flow
Simple payback period (uneven flows): Find the year where cumulative cash flow turns positive. The fractional year = |cumulative balance before recovery| ÷ cash flow in recovery year.
Discounted payback period: Same approach but using present values: PV = CF ÷ (1 + r)ⁿ