Payback Period Calculator
Payback period is the time needed for an investment's cash inflows to equal its initial cost. It is a quick screen for risk and liquidity.
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Payback period4.21 yearsabout 4 years 3 months
- Return per year
- 23.75%
How the Payback Period calculation works
Payback period = initial investment / annual net cash flow
The measure ignores cash received after payback and the time value of money, so it is best used alongside IRR.
Frequently asked questions
How do I calculate the payback period?
Divide the initial investment by the cash it brings in each year. A $50,000 investment that returns $12,500 a year pays back in 4 years.
How do I calculate payback with uneven cash flows?
Add the cash flows year by year until the running total reaches the initial investment. If $50,000 is recovered partway through year 4, divide the amount still owed at the start of that year by that year's cash flow to get the fraction.
What is the difference between payback period and discounted payback period?
The simple payback period treats a dollar received in five years the same as a dollar today. The discounted version reduces each future cash flow to its present value first, so it is always longer and more realistic.
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