Payback period answers a simple question before any other capital-budgeting metric does: how long until this investment has paid for itself?
How it works
Cash flows are added up year by year until the running total reaches the initial investment; the exact point within the year that happens is found by straight-line interpolation across that year’s flow, rather than rounding to the nearest whole year.
Simple vs. discounted
Simple payback treats every dollar the same regardless of when it arrives. Discounted payback first shrinks each year’s cash flow back to today’s dollars — the same present-value logic this site’s NPV calculator uses — before adding it up, which always pushes the payback point later or leaves it unchanged, never earlier.
What payback period doesn’t tell you
It ignores everything that happens after the payback point, so it can rank a fast-but-mediocre investment above a slower one that ultimately earns far more. It’s a liquidity and risk check, not a substitute for NPV or IRR.
How to use this calculator
- Enter the upfront investment.
- List each year’s expected cash flow, separated by commas.
- Enter a discount rate to also see the discounted payback period.
Frequently asked questions
What if the cash flows never add up to the investment?
The calculator says so directly rather than guessing — add more years of cash flow, or the investment simply doesn’t pay back within the horizon given.
Is a shorter payback period always better?
For liquidity and risk, generally yes — but on its own it says nothing about total profitability, which is what NPV and IRR are built to measure instead.
Why is the discounted payback period always longer?
Discounting reduces the value of every future dollar, so it takes more nominal dollars to reach the same investment total — the discounted total can never overtake the undiscounted one.
What discount rate should I use?
The same one you’d use for NPV — typically the return available elsewhere at a comparable level of risk.
