When cumulative inflows recover the investment
Payback is the first modeled year when cumulative inflows recover the initial investment. A fractional year assumes recovery occurs uniformly within that year. A “not recovered” result applies only to the modeled horizon, not to all future time.
To compare gain with the amount invested, use the ROI Calculator .
The formula
The initial outlay occurs at time zero. Annual cash flows are discounted as end-of-year amounts; fractional discounted payback linearly interpolates the recovery year’s discounted amount. This is a conventional approximation, not an exact within-year discounted cash-flow timing model.
Worked example
An initial investment of 10,000 followed by 3,000 per year has simple payback 3 + 1,000/3,000 = 3.3333 years. At an 8% discount rate, discounted payback is approximately 4.0312 years within a 10-year model.
How to use this calculator
- Enter the initial outlay and choose constant or uneven annual cash flows.
- Supply net cash amounts after the operating costs you want to include; choose a discount rate.
- Inspect recovery times and expand the table to check cumulative balances.
Cash flow differs from accounting profit
Payback tracks money entering and leaving the project. Accounting depreciation is an expense allocation and should not automatically be deducted as a cash payment. Include cash costs, receipts, and any relevant terminal value consistently. This tool does not build an operating forecast, calculate taxes, or infer a resale amount.
Why discounted payback can take longer
A positive discount rate reduces the present value of future inflows. The discounted balance therefore often reaches zero later than the undiscounted balance, or remains negative within the entered horizon. With a zero discount rate, both methods return the same recovery time. The chart shows simple cumulative net cash flow, while the table retains both measures.
Recovery can later be reversed
Uneven cash flows may include negative years. The reported payback is the first crossing of zero; later outflows can push cumulative cash flow below zero again. Review the entire schedule rather than stopping at the headline period. Payback also overlooks profitability after recovery, so it should accompany an assessment of the project’s full cash-flow profile.
Assumptions & limitations
What this calculation assumes
- Initial investment at time zero; annual flows at year end; fractional recovery uses linear interpolation.
What to keep in mind
- No exact dated cash flows, IRR, tax model, or guarantee that recovery remains permanent.
Common questions
Why does the calculator say not recovered?
The entered cash flows do not cover the initial outlay within the modeled years. Extend the horizon only if you have defensible additional cash flows.
Can I enter a negative annual amount?
Yes, in uneven mode. It represents a net cash outflow and reduces cumulative recovery.