Payback Period Calculator
Calculate investment recovery time with simple and discounted payback analysis
Payback Period Calculator
Investment Information
Total amount you plan to invest
Annual discount rate for time value of money
Enable for more accurate discounted payback period calculation
Cash Flow Type
Annual Cash Flow
Expected annual cash inflow from the investment
Payback Period Results
Cash Flow Analysis
| Year | Cash Flow | Present Value | Cumulative | Cumulative PV |
|---|---|---|---|---|
| 0 | -$100,000 | -$100,000 | -$100,000 | -$100,000 |
| 1 | $24,000 | $22,857.143 | $-76,000 | $-77,142.857 |
| 2 | $24,000 | $21,768.707 | $-52,000 | $-55,374.15 |
| 3 | $24,000 | $20,732.102 | $-28,000 | $-34,642.047 |
| 4 | $24,000 | $19,744.859 | $-4,000 | $-14,897.188 |
| 5 | $24,000 | $18,804.628 | $20,000 | $3,907.44 |
| 6 | $24,000 | $17,909.17 | $44,000 | $21,816.61 |
| 7 | $24,000 | $17,056.352 | $68,000 | $38,872.962 |
Investment Analysis & Recommendations
Example: Rental Property Investment
Investment Scenario
Initial Investment: $100,000 (apartment purchase)
Annual Rental Income: $24,000
Discount Rate: 5% (opportunity cost)
Cash Flow Type: Steady annual income
Calculation Results
Simple Payback: $100,000 ÷ $24,000 = 4.17 years
Discounted Payback: 4.79 years (considering 5% discount rate)
Assessment: Moderate investment with reasonable payback period
NPV Analysis: Positive NPV indicates value creation
Payback Period Guidelines
Excellent (≤2 years)
Good (2-4 years)
Moderate (4-7 years)
Long (7+ years)
Key Considerations
Compare simple vs. discounted payback periods
Consider cash flow reliability and timing
Evaluate opportunity cost (discount rate)
Assess investment risk and market conditions
Use alongside NPV and IRR analysis
Consider inflation impact on future cash flows
Understanding Payback Period Analysis
What is Payback Period?
- •Definition: Time required to recover initial investment
- •Simple Formula: Investment ÷ Annual Cash Flow
- •Purpose: Quick investment screening metric
- •Usage: Risk assessment and liquidity planning
Types of Payback Period
- •Simple: No consideration of time value of money
- •Discounted: Accounts for time value and inflation
- •Irregular: Handles varying annual cash flows
- •Dynamic: Considers changing market conditions
Formula & Calculation
Simple Payback Period:
PP = Initial Investment ÷ Annual Cash Flow
Discounted Payback Period:
DPP = -ln(1 - I×R/C) ÷ ln(1 + R)
Where: I = Investment, R = Discount Rate, C = Cash Flow
Analysis Benefits
- •Quick investment screening tool
- •Risk assessment and liquidity planning
- •Cash flow timing evaluation
- •Investment comparison and ranking