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Payback period calculator

This payback period calculator shows when an investment has paid for itself through its cash flows – simple and discounted. With an investment of 10,000 and a cash flow of 2,500 a year, the simple payback is 4.0 years and the discounted payback at 5% is 4.6 years.

Example: Investment (initial cost) 10,000 · Cash flow in year 1 2,500 · Yearly change of the cash flow 0 % · Discount rate for the discounted payback 5 % · Time horizon 10 years → Simple payback period: Simple payback period: 4.0 years (4 years 0 months). Source: Wikipedia – Payback period (simple and discounted payback). Updated: .

Yearly net cash inflow, for example savings or profit.
%
0 = constant; negative if the cash flow declines.
%
years
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Result

Simple payback period
Simple payback period: 4.0 years (4 years 0 months)
Discounted payback period
Discounted payback period (5% rate): 4.6 years (4 years 7 months)
Net present value
Net present value after 10 years: +9,304.34
Total cash returned
Cash flows after 10 years: 25,000.00 – profit of 150.0% of the investment (undiscounted)
Year by year
YearCash flowBalance (nominal)Balance (discounted)
12,500.00−7,500.00−7,619.05
22,500.00−5,000.00−5,351.47
32,500.00−2,500.00−3,191.88
42,500.00+0.00−1,135.12
52,500.00+2,500.00+823.69
62,500.00+5,000.00+2,689.23
72,500.00+7,500.00+4,465.93
82,500.00+10,000.00+6,158.03
92,500.00+12,500.00+7,769.55
102,500.00+15,000.00+9,304.34

How it is calculated

How to calculate the payback period

The simple payback period is the moment when the sum of the cash flows reaches the investment. With a constant cash flow it is investment ÷ yearly cash flow: 10,000 ÷ 2,500 = 4.0 years. If the cash flow changes, the years are added up and the year in which the total is crossed is counted proportionally.

Discounted payback

The discounted calculation discounts every cash flow: present value = cash flow ÷ (1 + rate)year. At 5%, 2,500 in year five is worth only 1,959 today. So it takes longer for the discounted cash flows to reach 10,000: about 4.6 years.

Net present value and total return

The net present value is the sum of all present values minus the investment. If it is positive at the end of the horizon, the investment pays off at this rate. The table shows the balance per year and the switch from minus to plus.

Honest limits

Payback only says when the money is back, not how much is earned afterwards. Cash flows are assumed at the end of each year; taxes, residual values and follow-up investments are missing. For uneven cash flows the internal rate of return is the better measure. This is not investment advice.

Frequently asked questions

How do I calculate the payback period?

Divide the investment by the yearly cash flow: 10,000 ÷ 2,500 = 4 years. With changing cash flows they are added up year by year.

What is the difference between simple and discounted payback?

Simple payback ignores interest; discounted payback converts every cash flow to today’s value, so it comes out longer.

What is a good payback period?

Every company sets its own limit, often 2 to 5 years. Shorter means less risk but says nothing about later profit.

How do I calculate the payback of solar panels?

Divide the installed cost by the yearly savings plus any feed-in income. Use the yearly change for declining output or rising power prices.

What is net present value?

The sum of all discounted cash flows minus the investment. If it is positive, the investment earns more than the discount rate.

Sources and legal basis

As of:

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