Payback period calculator with discounted cash flow
Enter the initial investment, level annual net cash inflow and discount rate. HitEquals returns simple payback, the first whole discounted-payback year and a year-by-year recovery schedule.
Inputs used by this calculator
Payback Period Calculator uses the fields below. The starting values reproduce the page example; replace them with values from the same units and time period before using the result.
| Input | Starting example | Accepted value | How it is used |
|---|---|---|---|
| Initial investment ($) | 100,000 | 0.01 to 1000000000000000 | Supplies the initial investment ($) quantity used by the published equation or result breakdown. |
| Annual net cash inflow ($) | 25,000 | 0.01 to 1000000000000000 | Supplies the annual net cash inflow ($) quantity used by the published equation or result breakdown. |
| Discount rate (%) | 8 | 0 to 100 | Supplies the discount rate (%) quantity used by the published equation or result breakdown. |
What payback period measures
Payback period estimates how long modeled net cash inflows take to recover an initial outlay. It emphasizes liquidity and speed of recovery rather than total value created over the project's complete life.
Simple payback formula
For equal annual cash inflows, divide the investment by annual net cash inflow.
simple payback=initial investment/annual net cash inflowDiscounted payback formula
Discounted payback converts each future inflow to present value before accumulating it. Later dollars receive less weight when the discount rate is positive.
PV in year t=CF/(1+r)^tdiscounted payback=first t where ΣPV inflows≥investmentWorked $100,000 example
A $100,000 investment returning $25,000 each year has a four-year simple payback. At an 8% discount rate, the first four discounted inflows total less than $100,000, so discounted recovery takes longer.
Choosing net cash inflow
Use incremental cash received minus incremental cash paid because of the project. Accounting revenue or profit can differ from cash flow through timing, depreciation, working capital and financing treatment.
What payback leaves out
Simple payback ignores time value of money. Both payback methods ignore cash flows after recovery and do not directly measure total project value. Compare payback with net present value, internal rate of return and risk analysis when those measures are appropriate.
Simple versus discounted payback
| Measure | Time value of money | Cash after recovery | Primary use |
|---|---|---|---|
| Simple payback | Ignored | Ignored | Quick liquidity screen |
| Discounted payback | Included | Ignored | Recovery under a chosen discount rate |
| Net present value | Included | Included | Modeled value across the full horizon |
Frequently asked questions
What is a good payback period?
There is no universal cutoff; compare it with project life, financing constraints, risk and the organization's decision policy.
Why is discounted payback longer?
At a positive discount rate, later cash inflows have smaller present values.
Does payback measure profit?
No. It measures modeled recovery time and ignores cash flows after recovery.
Should I use revenue or cash flow?
Use incremental net cash flow attributable to the investment.
What happens at a zero discount rate?
Discounted and simple cumulative inflows are the same.
Is payback the same as break-even?
They are related but not identical; break-even can refer to units, revenue or accounting profit rather than recovery of an initial cash outlay.
What to keep in mind
Payback ignores cash flows after recovery and does not replace NPV or IRR for value creation.
Results are rounded for display in US format, with money in dollars and cents; CSV exports keep full calculation precision. This is a calculation summary, not an official certificate.