About the Payback Period Calculator
What is the Payback Period Calculator?
The payback period is the time it takes for an investment's cash inflows to add up to its initial cost. It is a simple measure of risk and liquidity: the shorter the payback, the sooner your money is back.
Enter the initial investment, the expected cash inflow for each year and a discount rate. The calculator gives the simple payback period, the discounted payback period (which accounts for the time value of money), the NPV and a year-by-year cumulative table.
How to use the Payback Period Calculator
- Initial Investment (₹) (sample: 5,00,000)
- Yearly Cash Inflows (₹, Year 1 onwards) (sample: 150000, 150000, 200000, 200000, 150000)
- Discount Rate for Discounted Payback (%) (sample: 10)
- Press Calculate Payback (results also refresh as you type). The result card shows the Payback Period, along with Discounted payback period, Total inflows, Net gain after all inflows and NPV at 10%.
Formula used
Payback = Years before full recovery + Unrecovered cost ÷ Cash flow in the recovery year
- Discounted payback = the same calculation using CFₜ ÷ (1 + r)ᵗ instead of CFₜ
Payback ignores cash flows after the recovery year, so always look at NPV as well.
Worked example
These are the sample values already filled in the calculator above, and the result it returns for them:
| Input | Sample value |
|---|---|
| Initial Investment (₹) | 5,00,000 |
| Yearly Cash Inflows (₹, Year 1 onwards) | 150000, 150000, 200000, 200000, 150000 |
| Discount Rate for Discounted Payback (%) | 10 |
| Result | Value |
|---|---|
| Payback Period | 3 years |
| Discounted payback period | 3.65 years |
| Total inflows | ₹8,50,000 |
| Net gain after all inflows | ₹3,50,000 |
| NPV at 10% | ₹1,40,334 |
Tips for using the Payback Period Calculator
- Use payback for quick screening of equipment, solar panels or small business investments.
- Discounted payback is always longer than simple payback when the discount rate is above zero.
- A project can have a short payback but a poor NPV if cash flows stop soon after.