FinCalcs

Payback Period Calculator — Simple & Discounted

Who this is for: For students covering the payback method in capital budgeting — and for small operators whose real question is 'when do I get my money back,' not 'what is the NPV.'

Not the right tool for: A profitability verdict — payback ignores everything after the cutoff, which is where most value lives · Comparing projects of different lifespans on payback alone — the shorter-lived one always looks safer

How fast does the project pay for itself? Simple and discounted payback from any cash flow stream, with linear interpolation inside the year.

Quick answer: Payback period is the time until cumulative cash flows recover the initial outlay. −$1,000 returning $400 a year pays back in 2.5 years on nominal dollars; discount at 8% and it takes 2.90 years. It measures liquidity and risk — not profitability — because it ignores everything after the cutoff.

Cash flows (CF0 first — outflows negative)
NPV
$533.05
discounted at 8% per period
IRR
33.87%
rate where NPV = 0
MIRR
24.53%
reinvested at 8%
Payback
1.83 periods
undiscounted cumulative
Discounted payback
2.04 periods
at 8% per period
Total inflows
$1,800.00
undiscounted sum of positive flows
PeriodCash flowDiscountedCumulative (discounted)
0 (today)-$1,000.00-$1,000.00-$1,000.00
1$500.00$462.96-$537.04
2$600.00$514.40-$22.63
3$700.00$555.68$533.05
MIRR here applies your discount rate as both the finance rate and the reinvestment rate. IRR shows “no solution” when the stream never crosses zero (all-positive or all-negative flows). Deciding between two projects? Read the NPV vs IRR guide before trusting IRR alone.
Cash flows entered per period (year, month — your choice, kept consistent). CF0 is day zero and is not discounted. Educational reference, not investment advice.
Core facts
Simple payback−$1,000; $400 × 3 years → 2.5 years
Discounted @ 8%2.90 years
Discounted @ 10%Never recovers within the stream
InterpolationLinear within the crossing year
CompiledOctober 2026

What payback period measures

Payback is the time until cumulative cash flows claw back the initial outlay — a risk-and-liquidity gauge, not a profitability measure. Simple payback ignores time value: −$1,000 returning $400 a year pays back in exactly 2.5 years ($400+$400 recovers $800; the last $200 takes 0.5 of year three). Discounted payback runs the same count on discounted flows: at 8%, those $400s are really $370.37, $342.94, $317.53, and payback stretches to 2.90 years. Push the discount rate to 10% and the discounted payback never arrives at all — same cash flows, different verdict. That sensitivity is why textbook examiners love the method's weakness: it says nothing about cash flows after the cutoff, and everything after payback is profit the metric simply cannot see.

Common uses

  • Homework: simple vs discounted payback on the same stream
  • Rough screening when liquidity matters more than optimization (tight cash cycles)
  • Explaining to a non-finance partner when the money comes back
  • Seeing at which discount rate a project stops paying back at all

Where these numbers come from

All results are computed in your browser from the standard closed-form formulas (and a numerical root-finder where no closed form exists — rates, IRR, YTM). Formulas follow the ordinary-annuity (END) convention used by the BA II Plus and HP 12C. Educational reference only — not investment, tax, or accounting advice.

Frequently Asked Questions

What is a good payback period?
One shorter than your planning horizon. Companies set arbitrary cutoffs (3 years, 5 years) and accept anything under them; the shorter the payback, the less the decision depends on distant, uncertain cash flows. It's a screening rule, not a value verdict — a project with a 1-year payback and nothing after is worse than a 4-year payback annuity.
How is the fractional year computed?
Linear interpolation inside the crossing year: if $800 of a $1,000 outlay is recovered after two years and the third year brings $400, payback = 2 + 200/400 = 2.5 years. This page uses the same interpolation for the discounted version, on discounted balances.
Why does discounted payback sometimes never happen?
Because discounting shrinks distant cash flows, a project that merely breaks even on nominal dollars can fall short of the hurdle rate forever — at a 10% discount rate, −$1,000 with $400 a year for 3 years never recovers its discounted cost. That's not an error; it's the metric telling you the project doesn't beat the rate within its life.
Payback vs NPV — which should I use?
For accept/reject decisions, NPV — payback ignores the time value of money (unless discounted) and everything after the cutoff. Payback earns its keep as a secondary screen for liquidity and risk, which is exactly how most textbooks present it.
Does payback include the initial investment?
It counts down from it. Enter the outlay as a negative CF0; payback is the time until cumulative flows reach zero. If you enter a positive CF0 the metric is meaningless — sign errors are the most common mistake on payback homework.

More capital budgeting calculators

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Paste a cash flow stream and a discount rate — get net present value plus the discounted table that shows where the value comes from.
IRR Calculator
Enter a cash flow stream — get the internal rate of return (plus NPV, MIRR, and payback) with the numerical solve done for you.
MIRR Calculator
Modified internal rate of return: reinvests inflows at a rate you choose instead of the IRR — the conservative fix for IRR's optimism.
WACC Calculator
Equity and debt values with their costs and the tax rate — get the weighted average cost of capital and the after-tax debt rate.
Break-Even Calculator
Fixed costs, price per unit, variable cost per unit — get break-even units, break-even revenue, and the profit at any volume.