Payback Period Calculator
Enter the initial investment cost and expected annual or monthly cash inflows to calculate the payback period — how long until the investment recovers its original cost.
Enter your initial investment and expected cash inflows to calculate how long until the investment pays back its original cost.
Formula
Payback Period (years) = Initial Investment ÷ Annual Net Cash Inflow
The payback period assumes equal cash inflows each period. It measures how many years (or months) are needed to recover the original investment from net operating cash flows, before considering any return beyond break-even.
Worked Example
New machine costs $50,000 and is expected to generate $15,000 in net annual cash savings.
Payback period = $50,000 ÷ $15,000 = 3.33 years
= 3 years 4 months
If the machine has a 10-year useful life, recovering the investment in 3 years 4 months means 6+ years of pure net benefit. If it had a 3-year warranty life, the project would barely break even.
FAQ
Frequently Asked Questions
Use this in your workflow
Once you have the payback period, use the ROI Calculator to measure the total return beyond the payback point. If you are financing the investment, use the Business Loan Calculator to compare loan repayments against your projected cash inflows. Browse all Free Business Calculators.
When to use this calculator
- →Evaluating capital equipment purchases and machinery replacement decisions
- →Assessing how quickly a new product line, store or branch will recover its launch cost
- →Comparing two investment options with different costs and return profiles
- →Preparing business cases and investment memos requiring payback analysis