Payback Period Calculator

The Payback Period is a capital budgeting metric that measures the time required to recover the initial investment from cash inflows generated by a project. It's one of the simplest investment appraisal methods, providing a quick assessment of liquidity and risk. A shorter payback period indicates faster recovery and lower risk. The discounted payback period accounts for the time value of money by discounting future cash flows, providing a more conservative and accurate measure of investment recovery time.

Simple Payback Period: Sum the annual cash flows until they equal the initial investment. The payback period is when cumulative cash flow becomes positive.

Discounted Payback: Uses discounted cash flows: DCF = CF / (1 + r)^t, where CF is cash flow, r is discount rate, and t is time period.

• •Shorter payback periods indicate lower risk and faster capital recovery
• •Discounted payback period is always longer as it accounts for time value of money
• •Growing cash flows significantly reduce payback period over time
• •Payback period ignores cash flows after recovery - consider other metrics like NPV