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Payback Period Calculator

The payback period is how long an investment takes to earn back what it cost. Enter the upfront cost and the net cash it brings in each year; add a discount rate to see the discounted payback period, which counts later cash as worth less.

Quick examples
$
$

Savings or profit the investment produces each year.

%

For the discounted figure. Your cost of capital or required return.

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Payback period4.17 years
That is
4 years 2 months
Discounted payback period
5.27 years
Cash return per year
24%

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      Formula

      Payback period = initial investment ÷ annual net cash flow
      Discounted payback = −ln(1 − investment × r ÷ cash flow) ÷ ln(1 + r), where r is the discount rate
      If investment × r is greater than or equal to the cash flow, the discounted investment never pays back

      How to use it

      1. Enter the total upfront cost, including installation.
      2. Enter the net cash gained or saved per year after running costs.
      3. Enter a discount rate to see the discounted figure.

      Worked examples

      A $50,000 machine that saves $12,000 a year, discounted at 8%

      Payback period
      4.17 years
      That is
      4 years 2 months
      Discounted payback period
      5.27 years
      Cash return per year
      24%

      $18,000 of solar panels saving $1,800 a year, discounted at 4%

      Payback period
      10 years
      That is
      10 years
      Discounted payback period
      13.02 years
      Cash return per year
      10%

      Strengths and limits

      Payback is easy to explain and a good first screen for risk: the sooner the money is back, the less can go wrong. But it ignores everything after the payback point, so a project that pays back in three years and then stops looks better than one that pays back in four and earns for twenty. Use NPV or IRR alongside it for anything long-lived.

      This calculator assumes the same cash flow every year. For uneven cash flows, add them up year by year until the total passes the cost.

      Questions people ask

      How do I calculate the payback period?

      Divide the cost by the yearly cash flow. A $50,000 machine saving $12,000 a year pays back in 4.17 years, or 4 years 2 months.

      What is the discounted payback period?

      The time to recover the cost when future cash is discounted. The same machine at an 8% discount rate takes 5.27 years.

      What is the payback period for solar panels?

      Cost after incentives divided by yearly bill savings. $18,000 of panels saving $1,800 a year pays back in 10 years, or about 13 years discounted at 4%.

      Related calculators

      NPV CalculatorNet present value of an upfront cost and a list of yearly cash flows.IRR CalculatorInternal rate of return for an investment and its yearly cash flows.ROI CalculatorReturn on investment as a percentage, a dollar gain and a yearly rate.Break-Even CalculatorUnits and revenue needed to cover your costs.Present Value CalculatorWhat a future sum or stream of payments is worth today.