Payback period calculator
Find how long an investment takes to earn back its cost, with or without valuing later money in today's terms.
Results
Payback period
4.2 years
This is how long the money coming in takes to pay back what you put in at the start, or 5.3 years in today's money at 8% a year.
- Payback in today's money
- 5.3 yearsWith later money valued at 8% a year less (discounted payback)
- Total money coming in
- $72,000.00
- Value added in today's money
- $5,474.56Net present value (NPV): the money coming in, in today's money, minus what you put in
Running total
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How it works
We add up the money each year brings in until the running total covers what you invested at the start. If it is covered partway through a year, we assume the money arrives evenly and count the fraction of that year. The payback in today's money (discounted payback) does the same after shrinking each year's money to its value today, so it is always as long or longer.
Formula
- Running total after year t = −amount invested + A1 + A2 + … + At, where At is the money in year t
- Payback = full years before the total turns positive + amount still to recover ÷ next year's money
- Year t in today's money = At ÷ (1 + return you want)^t
- NPV = −amount invested + sum of each year in today's money
Frequently asked questions
What is a good payback period?
It depends on the kind of project and how long its benefits last. A shorter payback means your money is at risk for less time. Many businesses set a limit, such as three to five years, and compare it with the useful life of the asset.
Why look at payback in today's money?
Money received in later years is worth less than money today, because you could have invested it. Valuing each year's money at the return you want gives a more realistic, longer payback. With a 0% return, both figures are the same.
What does a payback of 3.2 years mean?
The investment is fully recovered a fifth of the way into the fourth year. The part year assumes that year's cash comes in evenly, which is a simplification if most of it arrives at one time.
What does the payback period leave out?
It ignores everything that happens after the investment is recovered, so a project that keeps paying for many years can look no better than one that stops. Use it together with the value in today's money (NPV) or the IRR calculator to judge the full value.
Related calculators
- IRR calculatorWork out the return (IRR) and today's value (NPV) of money you put in and get back over time.
- ROI calculatorSee how much an investment made or lost, as a total percentage and as a yearly rate.
- Present and future value calculatorFind what money is worth today or later, with an optional regular payment.
Results are estimates only, not financial advice. Read the disclaimer.