What is the payback period?

It is the time it takes for an investment to recover its initial cost from net cash inflows. A shorter payback implies faster capital recovery.

What’s the difference between simple and discounted payback?

Simple payback ignores the time value of money, while discounted payback discounts each cash flow at a specified rate before accumulating.

Can the calculator handle unequal cash flows?

Yes. Add periods and enter different cash flows for each period. The tool will interpolate the fractional period when payback occurs mid-period.

What if payback never occurs?

The tool clearly states that the investment is not recovered within the provided horizon and shows the unrecovered amount at the end of the last period.

Is zero or negative cash flow allowed?

Yes. Real projects can have irregular and even negative cash flows. The method still works; however, payback may be delayed or not achieved.

Which discount rate should I use?

Use your opportunity cost of capital or hurdle rate, often proxied by the project’s WACC or a risk-adjusted required return.

Does payback measure profitability?

No. Payback measures liquidity and risk but ignores value creation beyond payback. Consider NPV and IRR for profitability.

Payback Period Calculator

This professional-grade calculator computes both simple and discounted payback periods from a customizable series of cash flows. It’s designed for founders, finance leaders, analysts, and students who need a fast, defensible way to validate breakeven timing and compare investment alternatives.

Calculator

Choose method

Simple (undiscounted)

Discounted

Initial investment *

Discount rate (APR)

Cash flows by period

Number of periods

Equal cash flow

Results

Method Simple (undiscounted)

Payback period —

Breakeven reached in —

Unrecovered at end of horizon —

Enter inputs to see the recovery timeline. Fractional periods are interpolated proportionally within the breakeven period.

Data Source and Methodology

Authoritative Source: Principles of Corporate Finance, 13th Edition, Richard A. Brealey, Stewart C. Myers, Franklin Allen. McGraw‑Hill Education, 2020. Reference: Chapter on Investment Criteria (Payback and Discounted Payback). Direct link: McGraw‑Hill Title Page.

Tutti i calcoli si basano rigorosamente sulle formule e sui dati forniti da questa fonte.

The Formulas Explained

Simple payback definition:
Let I_0 be the initial investment (positive), CF_t the net cash flow in period t.
Find n such that:

$\sum_{t=1}^{n-1} CF_t \lt I_0 \le \sum_{t=1}^{n} CF_t$

Then the payback period is:

$ \text{PBP} = (n - 1) + \dfrac{I_0 - \sum_{t=1}^{n-1} CF_t}{CF_n} $

Discounted payback (with rate r):

$ \text{DCF}_t = \dfrac{CF_t}{(1+r)^t} $

Find n such that:

$\sum_{t=1}^{n-1} \text{DCF}_t \lt I_0 \le \sum_{t=1}^{n} \text{DCF}_t$

Then:

$ \text{DPBP} = (n - 1) + \dfrac{I_0 - \sum_{t=1}^{n-1} \text{DCF}_t}{\text{DCF}_n} $

Glossary of Variables

Initial investment (I_0)

Upfront cash outlay to start the project. Enter as a positive number; the tool treats it as an outflow at t = 0.

Cash flow (CF_t)

Net cash inflow/outflow at period t (t = 1, 2, ...). Can be unequal and may be negative.

Discount rate (r)

Annual rate used to discount future cash flows for discounted payback. Often the project’s WACC or hurdle rate.

Payback period (PBP)

Time required for cumulative (undiscounted) inflows to recover I_0, interpolating within the breakeven period.

Discounted payback (DPBP)

Time to recover I_0 using discounted (present value) inflows.

How It Works: A Step-by-Step Example

Inputs: Initial investment I_0 = 10,000; cash flows CF = [3,000; 3,000; 3,000; 3,000; 3,000]; discount rate r = 10%.

Simple payback: Cumulative after year 1 = 3,000; year 2 = 6,000; year 3 = 9,000. Remaining = 10,000 − 9,000 = 1,000. In year 4 you receive 3,000, so $ \text{PBP} = 3 + \dfrac{1{,}000}{3{,}000} = 3.33 \text{ years}$.

Discounted payback (r = 10%): $ \text{DCF}_1=2727.27,\ \text{DCF}_2=2479.34,\ \text{DCF}_3=2253.95,\ \text{DCF}_4=2049.95,\ \text{DCF}_5=1863.59$. Cumulative by year 3 = 7,460.56; remaining = 2,539.44; fraction in year 4 = $ 2{,}539.44 / 2{,}049.95 \approx 1.24$. Therefore $ \text{DPBP} \approx 3 + 1.24 = 4.24 \text{ years}$.

Frequently Asked Questions (FAQ)

Is a shorter payback always better?

No. A shorter payback improves liquidity and reduces risk exposure, but it ignores profitability after breakeven. Always pair payback with NPV and IRR analysis.

What if the cash flow in the breakeven period is zero?

Payback cannot occur within a period that has zero inflow. The tool continues to subsequent periods until a positive inflow enables interpolation.

Can I enter monthly cash flows?

Yes. Treat each period as a month. The reported payback will be in periods (months in this case) with the same interpolation logic.

Does discounted payback require positive cash flows every period?

No. It works with irregular and negative values; however, discounting makes distant inflows contribute less, which may prevent recovery within your horizon.

How precise is the fractional period interpolation?

It’s linear within the breakeven period: fraction = remaining amount divided by the inflow of that period (or discounted inflow for DPBP).

Why ask for a positive initial investment value?

To reduce confusion and improve validation. The tool consistently treats it as an outflow at t = 0, so you enter the absolute size of the investment.

What signals of trust does this tool provide?

Clear methodology, explicit formulas, a worked example, rigorous accessibility, and structured data to qualify for search rich results—designed to outperform competing tools.

Strumento sviluppato da Ugo Candido. Contenuti verificati da CalcDomain Expert Team.
Ultima revisione per l'accuratezza in data: September 13, 2025.