Payback Period Calculator
Calculate how long it takes to recover your investment with our Payback Period Calculator. Determine simple and discounted payback periods, average returns, and investment schedules.
Understanding Payback Period
The payback period is the time required to recover the cost of an investment. It’s a key metric used to evaluate the risk of an investment – the shorter the payback period, the less risk involved.
Key Concepts
- Simple Payback: Time to recover initial investment without considering time value of money
- Discounted Payback: Accounts for time value of money using discount rates
- Investment Schedule: Detailed breakdown of cash flows over time
- Average Return: Annualized return on investment
Limitations
Payback period doesn’t consider cash flows after the payback period or the overall profitability of an investment. Use it alongside other metrics like NPV and IRR for comprehensive analysis.
Calculate Payback Period
Annual Cash Flows (Inflows)
Simple Payback Period
Investment Schedule
| Year | Cash Flow | Cumulative Cash Flow | Status |
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Annual Cash Flows (Inflows)
Discounted Payback Period
Discounted Cash Flow Schedule
| Year | Cash Flow | Discounted Cash Flow | Cumulative DCF | Status |
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Understanding Payback Period Results
Interpreting your payback period calculation is crucial for making informed investment decisions. Here’s how to evaluate your results:
Short Payback Period
Less than 2 years: Excellent recovery time. Low risk investment with quick capital recovery. Ideal for industries with rapid technological change.
Medium Payback Period
2-5 years: Reasonable recovery time. Moderate risk investment. Common for equipment upgrades and facility improvements.
Long Payback Period
More than 5 years: Higher risk investment. Requires careful consideration of long-term benefits. Common in infrastructure and real estate.