Payback Period Calculator
Find how long an investment takes to earn back its cost, with and without discounting.
About the Payback Period Calculator
Enter the cash flows year by year, starting with the cost as a negative number in year 0, and a discount rate. The calculator gives the simple payback period, the discounted payback period and a chart of the cumulative cash flow.
The payback period is when cumulative cash flow turns positive, assuming cash arrives evenly through each year. Discounted payback first discounts each year's cash flow, so it's always longer. Payback ignores cash flows after that point, so use it with NPV.
The formula
Payback = years before recovery + remaining cost ÷ cash flow in the recovery year
Worked example
Cost 100,000, then 30,000, 35,000, 40,000 and 45,000 a year
- After 2 years: −100,000 + 30,000 + 35,000 = −35,000 still to recover
- Year 3 brings 40,000, so payback = 2 + 35,000 ÷ 40,000 = 2.88 years
- Discounted at 10%: 3.45 years
Questions people ask
What's a good payback?
Depends on risk; many firms want under 3–5 years.
Why discount?
A dollar received later is worth less than one today.