Payback Period Calculator
Calculate how long it takes to recover your investment. Analyze simple and discounted payback periods with uniform or variable cash flows.
Payback Analysis
Payback Period
4 years
Cash Flow Type
Investment Details
Payback Analysis
Simple Payback Period
4 years
4.00 years
Discounted Payback Period
5 years
at 8% discount rate
Total Cash Flows
$500,000
NPV
$145,454
ROI
400.0%
Break-even
Year 4
Cumulative Cash Flow
Cash Flow Schedule
| Year | Cash Flow | Cumulative | Discounted |
|---|---|---|---|
| Initial | -$100,000 | -$100,000 | -$100,000 |
| Year 1 | $25,000 | -$75,000 | -$76,852 |
| Year 2 | $25,000 | -$50,000 | -$55,418 |
| Year 3 | $25,000 | -$25,000 | -$35,573 |
| Year 4 | $25,000 | $0 | -$17,197 |
| Year 5 | $25,000 | $25,000 | -$182 |
| Year 6 | $25,000 | $50,000 | $15,572 |
Investment Decision Guidelines
Strong (<3 years)
Quick recovery, lower risk. Suitable for uncertain markets or short-term investments.
Moderate (3-5 years)
Standard for many business investments. Balance of risk and return potential.
Long (>5 years)
Higher risk, suitable only for stable, long-term investments with predictable returns.
Payback Analysis
Payback Period
4 years
Quick Answer
Payback period is the time required to recover an initial investment from its cash flows. For even cash flows: Payback = Initial Investment / Annual Cash Flow. A $10,000 investment generating $2,500/year has a 4-year payback period. Calculate complex scenarios at practicalwebtools.com.
Key Facts
- Payback period = Initial Investment / Annual Cash Flow (for even flows)
- Shorter payback period = lower risk (money back faster)
- Common hurdle rates: 2-5 years depending on industry
- Does not consider cash flows after payback (a limitation)
- Does not account for time value of money (use discounted payback for that)
- Simple metric for quick investment screening
- Best used alongside NPV and IRR for complete analysis
Frequently Asked Questions
Payback period is the time it takes for an investment to generate enough cash flow to recover the initial cost. For example, if you invest $100,000 and receive $25,000 per year, the payback period is 4 years. It's a simple measure of investment risk and liquidity.
Discounted payback period considers the time value of money by discounting future cash flows to present value. It shows when you'll recover your investment in today's dollars. It's always longer than simple payback because future money is worth less than present money.
It depends on the industry and investment type. For technology investments, 3-5 years is common due to rapid change. For real estate or infrastructure, 10-15+ years may be acceptable. Generally, shorter is better as it reduces risk and improves liquidity.
Payback period ignores: 1) Cash flows after the payback point, 2) Time value of money (unless using discounted version), 3) Profitability - only measures recovery speed. Two projects with the same payback can have very different total returns. Use with NPV and IRR for complete analysis.
Select "Variable Cash Flows" mode and enter each year's expected cash flow. The calculator will find the exact point where cumulative cash flows equal the initial investment, including the fractional year portion.
Common choices: company's cost of capital (WACC), required rate of return, opportunity cost, or inflation rate + risk premium. For conservative analysis, use a higher rate (10-15%). For inflation-only adjustment, use 2-4%.
Payback Analysis
Payback Period
4 years