How to use this calculator
Enter three numbers.
- Initial investment: the amount spent at the start.
- Yearly cash inflow: the net cash the investment brings in each year, after its running costs. The calculator assumes the same amount every year.
- Discount rate: the yearly return you require. It is used for the discounted payback period only.
The calculator returns the simple payback period, the discounted payback period and the yearly return on the investment. The chart shows cash recovered over time, so you can see when the investment is paid back.
Worked example
These are the starting values in the calculator above and the results they give. Change any input to see your own numbers.
- Initial investment
- $100,000
- Cash inflow per year
- $30,000
- Discount rate
- 8%
- Payback period
- 3.3 years
- Discounted payback
- 4 years
- Yearly return on investment
- 30%
How the payback period is calculated
The simple payback period is the initial investment divided by the yearly cash inflow. An investment of $20,000 that brings in $5,000 a year pays back in 4 years.
The yearly return on the investment is the yearly cash inflow divided by the initial investment, shown as a percent. In the same example, $5,000 ÷ $20,000 is 25%. It is the simple payback turned upside down.
The discounted payback period allows for the fact that money received later is worth less than money today. Each year's inflow is first reduced to its present value using the discount rate. The calculator then counts how long those smaller amounts take to add up to the initial investment. To see the discounting year by year, use the NPV calculator.
Simple payback period = I ÷ C- I
- initial investment
- C
- yearly cash inflow
- C ÷ (1 + r)^t
- present value of the inflow in year t, used for discounted payback
- r
- discount rate per year, as a decimal
How to read the results
A shorter payback period means your money is at risk for less time. That matters most when cash is tight or the future is hard to predict.
- The discounted payback is always longer than the simple payback when the discount rate is above zero.
- The higher the discount rate, the wider the gap between the two.
- If the discounted inflows never add up to the investment, there is no discounted payback. At that discount rate the project does not earn its required return, however long it runs.
What counts as a good payback period depends on the asset. As a rough rule of thumb, businesses often want equipment and small projects to pay back within a few years, and they accept longer periods for buildings and other long-lived assets. Expectations vary by industry.
The method has two blind spots. It ignores every dollar earned after the payback date, so a project that pays back fast and then stops can look better than one that pays back slowly and earns for decades. It also says nothing about total profit. Use it as a quick risk check, and pair it with a value measure such as net present value. The NPV vs IRR guide explains those fuller methods.
Frequently asked questions
What is a payback period?
The payback period is the time an investment takes to return the money spent on it. If a machine costs $12,000 and saves $4,000 a year, the payback period is 3 years. It is one of the simplest ways to judge an investment because it needs only two numbers and gives an answer anyone can understand.
What is the difference between simple and discounted payback?
Simple payback adds up yearly cash inflows at face value until they equal the investment. Discounted payback first reduces each future inflow to its value in today's money, using a discount rate, and then adds them up. Because discounted amounts are smaller, discounted payback takes longer. It is the more cautious of the two measures.
What is a good payback period?
Shorter is safer, but there is no single standard. Many businesses look for a payback of a few years on equipment and small projects, and accept much longer on property or infrastructure that lasts for decades. The right target depends on how long the asset will last, how certain the cash flows are and how much risk the business can carry.
What are the limitations of the payback period?
It ignores all cash flows after the payback date, so it cannot tell a project that keeps earning from one that stops. The simple version also ignores the time value of money. And it measures speed, not profit. For those reasons it works best as a first screen for risk, followed by net present value or internal rate of return.
How do I calculate payback period with uneven cash flows?
Add the cash flows year by year and keep a running total. The payback year is the one in which the running total first reaches the initial investment. To estimate the fraction of that final year, divide the amount still to be recovered at the start of the year by that year's cash flow. This calculator assumes equal yearly inflows.
This calculator gives estimates for education only. It does not know your full situation and is not financial advice. Reviewed and updated November 15, 2026.