What is payback period?

Payback period is the length of time required to recover the initial cost of an investment from its expected cash flows. A shorter payback period is generally preferred because it means the investment recoups its cost faster and exposes the investor to less risk.

What is the difference between simple and discounted payback period?

Simple payback period adds up raw cash flows until they equal the initial investment, ignoring the time value of money. Discounted payback period uses present values of future cash flows discounted at the required rate of return, giving a more accurate picture of when you truly break even in today's dollars.

How does payback period compare to NPV?

Payback period shows how quickly an investment is recovered, but ignores cash flows beyond that point. NPV (Net Present Value) measures the total value created over the entire investment horizon by summing all discounted cash flows minus the initial investment. A positive NPV means the investment creates value; payback period alone cannot tell you this.

How do you calculate IRR?

IRR (Internal Rate of Return) is the discount rate that makes the NPV of an investment equal to zero. It is found iteratively using methods like Newton-Raphson. If the IRR exceeds your required rate of return (hurdle rate), the investment is typically accepted. IRR above the discount rate means the project creates value.

Payback Period Calculator

Calculate simple & discounted payback periods, NPV, and IRR for any business investment

Quick Scenarios:

Investment

Initial Investment

Cash Flows

Use Uniform Annual Cash Flows?

Year 1 Cash Flow

Year 2 Cash Flow

Year 3 Cash Flow

Year 4 Cash Flow

Year 5 Cash Flow

Analysis Parameters

Discount Rate (Hurdle Rate)

Simple Payback = Investment / Annual CF (uniform) Discounted : sum PV(CF_t) until ≥ Investment NPV = Σ CF_t/(1+r)^t − Investment

Simple Payback Period

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Enter values to calculate

Discounted Payback

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5-Year NPV

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IRR

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Total Cash Flows

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NPV & IRR Analysis

Internal Rate of Return (IRR)

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The rate at which NPV = 0

Year	Cash Flow	PV of CF	Cumulative PV	vs Investment

Green rows indicate the year discounted payback is achieved. The final "vs Investment" value equals the project's 5-Year NPV.

Year-by-Year Cash Flow Analysis

Year	Cash Flow	Cumulative CF	PV of CF	Cumulative PV	Simple	Discounted

"Simple" and "Discounted" columns show when each payback threshold is crossed. Green = recovered.