Payback Period Calculator
Payback period (years) from initial investment and annual cash flow.
How it works
Payback = investment ÷ annual cash flow
A shorter payback recovers capital faster. It ignores time value and post-payback returns.
Worked example
Initial outlay 500,000, annual net cash flow 120,000: payback = 500000 ÷ 120000 ≈ 4.17 years — about 4 years 2 months.
Discounted at 8%, the payback stretches to roughly 5.6 years.
Notes and limitations
Payback is intuitive but ignores the time value of money and all cash flow after the cutoff, biasing toward short projects. Use it alongside NPV and IRR.