Calculate how long it takes an investment to pay for itself based on its initial cost and expected annual cash flows.
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The payback period is the point at which cumulative cash flows equal the initial investment. This calculator tracks your cash flows year by year and finds exactly when that happens, interpolating within the year the payback point falls in for a precise fractional-year answer.
For example, a 50,000 investment with 15,000 in annual cash flow each year pays back in exactly 3.33 years.
Payback period ignores the time value of money, a dollar received in year 5 is treated the same as a dollar received today, and it ignores any cash flows after the payback point. It's a useful simplicity/liquidity check, but pair it with a return-based metric like ROI or IRR for a fuller picture.
Using payback period as the only investment decision metric, since it ignores the time value of money and everything that happens after the payback point, pair it with ROI or NPV for a fuller picture.
Treating a shorter payback period as automatically the better investment, a fast-payback project can still have lower total lifetime returns than a slower one.
Entering optimistic, non-conservative cash flow estimates, since the payback calculation is only as reliable as the cash flow projections that feed it.
Enter each year's actual expected cash flow, the calculator handles uneven cash flows correctly by tracking the running cumulative total year by year.
It means the investment hasn't paid for itself within your entered timeframe, add more years of cash flow if you want to see a further-out payback point.
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