How this calculator works
- Step 1CostinvestmentWhat the project costs today.
- Step 2Add each yearrunning totalAdd the yearly cash it brings in.
- Step 3Part yearstill needed ÷ flowIn the final year, count only the fraction needed.
Payback is how many years of cash it takes to earn back the cost. With the same amount each year, divide the cost by it.
The OpenStax accounting textbook’s printer costs 150,000 and saves 20,000 a year, so it pays back in 7.50 years.
Worked example: rising cash flows
- Payback
full years + still needed ÷ next year’s cash
- Year 1+ ₹3,00,000₹3,00,000 recovered
- Year 2+ ₹4,00,000₹7,00,000 recovered
- Year 3+ ₹5,00,000₹12,00,000 recovered
- Year 4+ ₹6,00,000₹18,00,000 recovered
- Payback3 years + ₹3 lakh ÷ ₹6 lakh3.50 years
After three years ₹12 lakh is back; half of year 4’s ₹6 lakh covers the rest.
Simple or discounted
- Simple payback7.50 yearsEvery rupee counts the same, whenever it arrives.
- Discounted at 10%14.56 yearsLater rupees are worth less today, so it takes longer.
Discounted payback is always the same or longer than simple payback.
Assumptions and limits
- Even through the yearCash in a year arrives at a steady pace.
- Year-end discountingEach year’s cash is discounted at its end.
- After paybackCash after the payback year is ignored.
- Your figuresUse cash after running costs and tax.
Other ways to judge an investment
Payback shows how soon money comes back, not how much it earns. Other measures fill that gap.
For the rate a project earns, use the IRR calculator, which also gives NPV. The ROI calculator shows overall return, and the break-even calculator the sales needed to cover costs.
Common mistakes
Mistake: Using accounting profit.
Instead: Use cash flow: add back depreciation.
Mistake: Choosing on payback alone.
Instead: Also compare NPV or IRR, which count all the cash.
Mistake: Ignoring a loss year.
Instead: Enter it as a negative amount.
Checking the method
A separate script re-works every golden value in exact fractions by bisection on the recovery curve, and reproduces the OpenStax example.
Read how we test our calculators, or browse more money calculators.