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Payback Period Calculator
Calculate both the simple and discounted payback period for an investment from its cost, expected annual cash inflow, and discount rate, with a full year-by-year table.
🔒 This tool runs entirely in your browser. Your files are never uploaded to a server.
| Year | Cash inflow | Discounted inflow | Cumulative (simple) | Cumulative (discounted) |
|---|
Example shown. Assumes equal annual cash inflows for simplicity.
How the Payback Period Calculator works
- Enter the initial investment, an assumed equal annual cash inflow, and a discount rate.
- The tool builds a year-by-year table of cash inflows, both undiscounted and discounted back to present value.
- It finds the exact break-even point (interpolated within the year it occurs) for both the simple and discounted payback period.
The formula
Simple payback period = the year the cumulative cash inflow first equals or exceeds the initial investment, interpolated within that year. Discounted payback period does the same but on cash inflows first divided by (1 + rate)^year — the standard present-value discounting formula.
FAQ
What is the difference between simple and discounted payback period?
The simple payback period just adds up raw cash inflows year by year until they equal the initial investment. The discounted payback period first shrinks each future year's cash inflow by your discount rate (accounting for the time value of money), so it always takes at least as long as the simple version to break even.
Why does the discounted payback period take longer?
A dollar received five years from now is worth less than a dollar today, because money you have now could be invested and grow. Discounting each future cash inflow before summing it means the same total investment needs more calendar years of (shrunken) inflows to fully offset.
What are the limitations of payback period as a metric?
Payback period ignores any cash flows after the break-even point and doesn't directly measure overall profitability the way NPV or IRR do. It's best used as one quick screening metric — "how fast do I get my money back" — alongside a fuller investment analysis, not as the only decision criterion.
How we compare
| Feature | Online Tool Store | Spreadsheet formula | Full financial model |
|---|---|---|---|
| Both simple and discounted payback | ✓ | ✗ | ✓ |
| Setup time | Seconds | Minutes | Hours |
This tool assumes equal annual cash inflows for simplicity — for uneven, real-world cash flow forecasts, build out a full spreadsheet or financial model.