Payback Period Calculator
Find how long an investment takes to pay for itself from its annual cash flow — the simple and, optionally, discounted payback period.
How it works
Simple payback = initial investment ÷ annual cash inflow · Discounted payback: accumulate cash inflow ÷ (1 + rate)^year until it covers the investment
The simple payback period divides the upfront investment by the annual cash it throws off — the number of years to recover your money. Its weakness is ignoring the time value of money, so the discounted payback period restates each year’s cash flow in today’s dollars before adding it up, always producing a longer (and more honest) figure. Payback is a quick liquidity screen but ignores everything that happens after break-even, so pair it with ROI or IRR.
Worked example
A $50,000 investment that returns $15,000 a year has a simple payback of 50,000 ÷ 15,000 ≈ 3.33 years (3 years 4 months). Discounting those inflows at 8% pushes the discounted payback to roughly 4 years, because later dollars are worth less today.
Frequently asked questions
What is a good payback period?
Shorter is generally better because it means less time with capital at risk, but "good" depends on the investment’s lifespan and your alternatives. A 2-year payback on equipment lasting 10 years is excellent; the same payback on something lasting 3 years is marginal.
What is the difference between simple and discounted payback?
Simple payback treats every future dollar as equal. Discounted payback shrinks each future cash flow by a discount rate first, reflecting that money later is worth less than money now — so it always gives a longer period.
Why not just use payback period alone?
Payback ignores all cash flows after break-even and, in its simple form, the time value of money. A project can pay back fast yet earn little afterward. Use it alongside ROI, NPV or IRR for the full picture.
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Educational estimate, not financial advice.