Finance
Payback Period Calculator
Calculate how many years a project needs to recover its initial investment. Supports uniform or year-by-year cash flows, plus optional discounted payback at your hurdle rate.
Payback period details
Simple payback period
4.17 yr
Moderate payback (2 to 5 years)
- Initial investment
- $50,000.00
- Discounted payback
- 5.28 yr
- Final cumulative cash flow
- $120,000.00
- Final cumulative PV
- $80,520.98
| Year | Cash flow | Cumulative | Cumulative PV |
|---|---|---|---|
| 1 | $12,000.00 | $12,000.00 | $11,111.11 |
| 2 | $12,000.00 | $24,000.00 | $21,399.18 |
| 3 | $12,000.00 | $36,000.00 | $30,925.16 |
| 4 | $12,000.00 | $48,000.00 | $39,745.52 |
| 5 | $12,000.00 | $60,000.00 | $47,912.52 |
| 6 | $12,000.00 | $72,000.00 | $55,474.56 |
| 7 | $12,000.00 | $84,000.00 | $62,476.44 |
| 8 | $12,000.00 | $96,000.00 | $68,959.67 |
| 9 | $12,000.00 | $108,000.00 | $74,962.65 |
| 10 | $12,000.00 | $120,000.00 | $80,520.98 |
Frequently Asked Questions about the Payback Period Calculator
What is the payback period?
Payback period is the time required for cumulative cash inflows from a project to repay its initial investment. Spend $50,000 on equipment that throws off $10,000 a year and your simple payback is 5 years. It is a rough liquidity metric: how long is your money locked up before you get it back?
What is the difference between simple and discounted payback?
Simple payback adds up nominal cash flows year by year and ignores the time value of money. Discounted payback first converts each year's cash flow to present value using your discount rate, then asks when those discounted inflows recover the outlay. Discounted payback is always longer than simple payback (often noticeably so) because every dollar received later is worth less today.
Why is a short payback not the same as the best NPV?
Payback stops counting the moment the investment is recovered, so it rewards projects that return money quickly even if their total lifetime cash flow is small. A 2-year payback with $5,000 of cash flow after that is worse than a 4-year payback with $200,000 of cash flow after that. Use payback for liquidity and risk screening, then rank survivors by NPV or IRR.
What payback periods are typical in industry?
Hurdles vary by sector and risk tolerance. Heavy industrial and infrastructure projects often accept 3 to 5 years. IT and software investments usually need to clear 1 to 2 years because technology cycles are short. Energy efficiency retrofits sit somewhere in between at 3 to 7 years. Higher-risk startups and unproven technology often demand under 2 years simply because the future cash flow is too uncertain to lean on.
What does payback ignore that NPV captures?
Every cash flow after the payback point. A 10-year project that pays back in 3 years and then earns $1 million a year for the next 7 years looks identical, under payback alone, to one that earns nothing more after year 3. That is the central limitation of the metric: it treats the post-payback period as if it does not exist. NPV and IRR, by contrast, weight every period of the project's life.