Payback Period Calculator

How this result is built

Find the payback period, the discounted payback, and the cash-flow return for a growing or uneven investment.

Payback is the year the running cash flow crosses back through zero. A fraction of a year is the amount still unrecovered, divided by that year’s cash flow. A yearly increase grows the cash flow. It does not change the investment.

What the opening example is for

Discounted payback does the same crossing on the present value of each cash flow. The cash-flow return rate is the internal rate of return of the same list. Payback still ignores every dollar after recovery. Use NPV when those later years are the point.

The walkthrough below uses the numbers already sitting in Payback Period Calculator. Press Calculate and the headline should match this page. Then put your own figures in. The math does not run until you press the button, and Clear hides the result.

What each field is doing

The “Cash flow pattern” line on Payback Period Calculator starts at Fixed cash flow, with growth. If the label is a rate, type the annual figure the contract uses. If it is money, type the amount that will actually move, not a rounded hope.

Payback Period Calculator treats “Initial investment” as its own entry, and the form opens with $100,000.00. Leave that figure only when it matches the statement, the quote, or the plan you are testing. Press Calculate after the edit so the chart and the schedule move with it.

Before you replace it, “Cash flow per year” reads $30,000.00 on Payback Period Calculator. Received at the end of each year. A round example is useful for learning the page. It is a poor substitute for the number on your own paperwork, so replace it and run the form again.

Look at “Yearly increase” first if you are checking Payback Period Calculator: the filled value is 5%. The other fields stay put while you change this one. That is the clean way to see what this line is doing inside the result.

The remaining fields

The “Number of years” line on Payback Period Calculator starts at 5. If the label is a rate, type the annual figure the contract uses. If it is money, type the amount that will actually move, not a rounded hope.

Payback Period Calculator treats “Cash flows, one year per line” as its own entry, and the form opens with -100000 30000 31500 33075 34728.75 36465.19. Year 0 first. Type the investment as a negative number. Leave that figure only when it matches the statement, the quote, or the plan you are testing. Press Calculate after the edit so the chart and the schedule move with it.

Before you replace it, “Discount rate” reads 10% on Payback Period Calculator. A round example is useful for learning the page. It is a poor substitute for the number on your own paperwork, so replace it and run the form again.

The opening result, line by line

Press Calculate on the opening form and Payback period is 3.156. That is the number the rest of this section is talking about.

Discounted payback is 3.921 when you run the opening figures on Payback Period Calculator. That line is part of the same calculation as the headline. It is not a second balance you can spend on top of the result. Change one input and press Calculate if you want to see whether this line moves.

On this opening pass, cash flow return rate is 18.86%. That line is part of the same calculation as the headline. It is not a second balance you can spend on top of the result. Change one input and press Calculate if you want to see whether this line moves.

How those lines were produced

Payback Period Calculator reports that years in the schedule is 5. That line is part of the same calculation as the headline. It is not a second balance you can spend on top of the result. Change one input and press Calculate if you want to see whether this line moves.

Payback is the year the running cash flow crosses zero. The fraction is the unrecovered amount divided by that year’s cash flow.

A second pass changes only “Initial investment”, from $100,000.00 to $110,000.00. Payback period moves from 3.156 to 3.444. Nothing else on the form was edited, so the gap between those two results is the effect of that one field on Payback Period Calculator. If the gap is tiny, this page is not very sensitive to that entry. If the gap is large, get that entry from a document before you plan around the result.

What this page will not claim

Payback Period Calculator compounds the rate you type. Markets do not pay a flat rate, and a fund fee comes out of the return before you should type it. The page is the equation, not a forecast and not a recommendation to buy or sell.

Payback Period Calculator stops at its own formula. When the next question is different, open NPV Calculator (Cash flows discounted at the rate you require.); IRR Calculator (The rate that sets NPV to zero.); ROI Calculator (Total ROI and the annualized rate.). Do not add those results to this one as if they were the same kind of dollar.

Check the result before you use it

Start on Payback Period Calculator by reading the labels, not the headline. The opening labels are Cash flow pattern (Fixed cash flow, with growth), Initial investment ($100,000.00), Cash flow per year ($30,000.00), Yearly increase (5%), Number of years (5), Cash flows, one year per line (-100000 30000 31500 33075 34728.75 36465.19), Discount rate (10%). If a label is not the fact you have, the result cannot turn into that fact later. The illustration on the form lands on 3.156. When you press Calculate and see that same figure, the button and this explanation are using one formula.

Change one field at a time. Write down the headline, edit a single line, and press Calculate again. A large jump means that line carries the result. A line that does not move is a line the formula ignores, which is a reason to confirm you opened the right page. Payback Period Calculator is built for one job: Years to earn the cost back, with a discount rate. The description on the page says the same thing in a sentence: Find the payback period, the discounted payback, and the cash-flow return for a growing or uneven investment.

When the paperwork disagrees

Then hold the headline next to a source outside the site. That source might be a loan estimate, an account statement, a pay stub, or the public limit named in the methodology. A few cents of difference on a long schedule is ordinary rounding. A different rate, a fee you never typed, or a tax the form does not ask for is not rounding. Correct the input. Do not average the page with the paperwork.

When the outside source still disagrees, Payback Period Calculator has reached the edge of what it will claim. It will not phone a lender, pull a county record, or apply a credit you left blank. Send the calculator name, every input, and the result you expected through the contact page if you think the formula itself is wrong. Until that is settled, read 3.156 as the output of the fields above and nothing else.

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