ConvertOnlinePayback Period Calculator with Discounted Cash Flows
Report source: https://convertonline.org/calculators/payback-period-calculator
Measure how long projected annual cash flows take to recover an initial investment, with and without discounting for the time value of money.
Payback Period Calculator
Estimated payback period
Calculation schedule
| Period | Cash flow | Present value | Cumulative value |
|---|
Payback Period Calculator formula
The regular payback period accumulates nominal cash flows. Discounted payback first divides each year’s cash flow by (1 + rate)ʸᵉᵃʳ, then accumulates those present values.
When recovery occurs within a year, the calculator estimates the fraction using the unrecovered balance divided by that year’s cash flow.
Assumptions and limitations
- The initial investment occurs now and each later cash flow occurs at year end.
- The discount rate remains constant across the schedule.
- Payback ignores cash flows after recovery when ranking projects, so review return and NPV measures as well.
Worked example
Example: recovering a $100,000 investment
A $100,000 investment followed by cash flows of $30,000, $35,000, $40,000, $20,000, and $10,000 has a regular payback period of about 2.88 years.
At a 10% discount rate, the discounted payback period is about 4.01 years because later cash flows have lower present values.
Frequently asked questions
What is discounted payback?
It measures recovery time after reducing future cash flows to present value using the entered discount rate.
What if the investment is never recovered?
The result reports that payback was not reached within the entered cash flow schedule.
Does a shorter payback mean a better investment?
It can indicate faster recovery, but it does not measure all later returns, risk, or total value.
This calculator provides an estimate for planning and education. Actual cash flows, rates, taxes, fees, inflation, and investment outcomes may differ.