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Free Payback Period Calculator

Analyze different possibilities to invest your money and combine it with more tools to forecast your business investment. This free payback period calculator is an essential to help you estimate the number of years required to break even on an initital investment.

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Decoding the Use of the payback calculator

The Payback Period Calculation

In order to use the payback period calcualtor, it is essential to understand the difference between the regular payback period and the discounted payback period. This short article also explains the payback period formula to ensure you can apply the same on your business numbers. 

What is The Payback Period?

The period from now to the moment when you will recover your investment is called the payback period. Intuitively, you can say that it is equal to the total investment sum divided by the annual cash inflow:

\footnotesize PP = \frac{I}{C}

where:

  • PP – Payback period in years;
  • I – Total sum you invested; and
  • C – Annual cash inflow – the money you earn.

Taking Discounted Payback Period into account

The return on invested capital formula has two basic elements:

Every year your money depreciates by a certain percentage, called the discount rate. Unlike the regular payback period, the discounted payback period metric considers this depreciation of your money.

If the cash flows are regular (each year, you gain the same amount of money), it’s pretty easy to compute this metric. All you have to do is apply the following formula:

where:

  • DPP – Discounted payback period in years;
  • R – Discount rate;
  • I – Total sum you invested; and
  • C – Annual cash inflow – the money you earn.
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