Payback Period Calculator
How long an investment takes to pay for itself — plain and discounted.
Payback period is the time until cumulative cash flows cover the initial outlay.
How the payback period calculator works
Payback period is the time until cumulative cash flows cover the initial outlay. It is the simplest investment test and the most widely used, because it answers the question people actually ask: when do I get my money back?
Its weakness is real and worth stating. It ignores everything after the payback point, so a project that pays back in three years and then stops beats one that pays back in four and runs for twenty. It also ignores the time value of money, which the discounted version fixes by discounting each flow before accumulating.
Use it as a liquidity and risk check, not as the decision rule. NPV is the decision rule.
Formula: the period at which cumulative cash flow first turns positive
Worked examples
| Inputs | Payback period | Note |
|---|---|---|
| 25,000 paid back over five periods | 3.56 periods | about 3.6 periods |
| Never pays back | not within 3 periods | not within the periods given |
| Immediate payback | 0.83 periods | inside the first period |
FAQFrequently asked questions
What is the payback period?
The time until an investment's cumulative cash flows cover what it cost.
What is discounted payback?
The same measure with each cash flow discounted first, so it accounts for the time value of money. It is always longer.
Why is payback period criticised?
Because it ignores everything after the payback point, including the size of the eventual return.
What is a good payback period?
Entirely industry-dependent. Two to three years is a common corporate threshold for equipment; infrastructure runs to decades.
Should I use payback or NPV?
NPV for the decision, payback as a liquidity and risk check alongside it.
Where these figures come from
- CFA Institute — Quantitative Methods: The Time Value of Money — the discounting, annuity and IRR conventions used here
- US Federal Reserve — Regulation Z (Truth in Lending), APR calculation — why APR includes fees where a nominal rate does not
- MoneyHelper (UK Government-backed) — the UK's free money guidance service
Last checked: September 2026. These are the standard textbook formulas; the conventions named are those of the CFA Institute curriculum and ISO 80000 usage.