Payback Period Calculator

For equal annual cash flows: Payback Period = Initial Investment ÷ Annual Cash Flow. For uneven cash flows, you subtract each year's cash flow from the remaining balance until it reaches zero, then interpolate within the final year for a fractional-year answer.

It's the same idea, but each future cash flow is first discounted to its present value using a discount rate (reflecting the time value of money) before being applied toward recovering the investment — this always takes at least as long as the simple (non-discounted) payback period.

It depends heavily on the industry and the investment's expected useful life — shorter is generally preferred since it reduces risk exposure, but very short-payback-only decision rules can cause a business to reject genuinely profitable longer-term investments.

It ignores any cash flows that occur after the payback point, and (in its simple form) ignores the time value of money entirely — it's best used alongside NPV or IRR, not as the sole investment decision criterion.