Payback Period Calculator
How long before the investment has paid for itself — measured both in raw cash and in today’s money.
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How it works
Simple payback counts cashflows until they add up to the investment. It is easy to explain and widely used as a first screen, particularly where cash is tight and speed of recovery matters more than total return.
Discounted payback applies the discount rate first, so each year’s contribution is worth less than the last. It always takes longer, and the gap between the two figures is a good measure of how exposed a project is to the cost of capital.
Payback = years until cumulative cashflow ≥ initial investment
- Simple payback — ignores the time value of money
- Discounted payback — each year’s flow discounted before being counted
- Fractional year — interpolated within the year the threshold is crossed
Worked example
A 2,000,000 investment against five years of cashflows at 12%
Inputs
Results
Discounting adds more than a year. If the project only had a four-year life, it would never pay back in present-value terms.
Frequently asked questions
What is a good payback period?
It depends on the asset’s life and your cash position. Under three years is generally comfortable for equipment; infrastructure may reasonably take ten. What matters is that payback lands well inside the useful life.
Why is payback criticised as a measure?
Because it ignores everything after the payback point. A project paying back in two years then stopping scores better than one paying back in three and running profitably for a decade. Use it alongside NPV, never instead of it.
Which version should I use?
Discounted, if you are choosing between projects. Simple payback is fine as a rough screen or a liquidity check, but it flatters long projects by treating distant cash as though it arrived today.
Is my data sent anywhere?
No. The calculation runs entirely in your browser. Nothing you type is transmitted to us or stored.
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