How to use this calculator
Both tabs use annual cash flows. In Fixed, enter the first year's cash flow, the annual increase or decrease, and the number of years to model. Choose a 0% change for level cash flows. In Irregular, enter each year's amount separately. Enter 0 for a year with no cash flow: a blank field is omitted rather than preserved as an elapsed year.
Enter a positive initial investment and an annual discount rate. Read the ordinary and discounted cumulative balances in the schedule. Recovery may occur within the entered horizon for one measure and not the other.
Examples
Growing annual cash flow
A $100,000 investment starts with $30,000 in Year 1, increasing 5% each year
for five years. The first three flows are $30,000, $31,500, and $33,075,
leaving $5,425 unrecovered. Year 4 supplies $34,728.75, so ordinary
payback is 3 + 5,425 / 34,728.75 ≈ 3.156 years.
At a 10% annual discount rate, discounted payback is 3.921 years.
A project that has not paid back yet
A $1,000 investment receiving $100 in each of two years recovers only $200. It does not pay back within the entered horizon. This does not prove that it will never pay back; future cash flows have not been supplied.
Formula
Each discounted cash flow is CFₜ / (1 + d)ᵗ, where d is the annual
discount rate as a decimal and Year 1 is discounted once. Find the first year
whose cumulative balance reaches zero, then use:
payback = full years before recovery
+ unrecovered balance / recovery-year cash flow
Discounted payback uses the discounted balance and discounted recovery-year flow in the same calculation. The fractional year is a linear interpolation within an annual cash-flow bucket; it does not identify the actual date a lump-sum receipt arrives. The cash-flow return rate is the annual IRR of the initial outlay and all entered year-end cash flows.
Limits of payback analysis
Simple payback ignores the time value of money; discounted payback uses the entered discount rate but still ignores cash flows after recovery. Neither measure captures project scale, terminal value, financing constraints, or risk. A project that pays back sooner can still have a lower NPV. Use the schedule with NPV or IRR analysis rather than treating the shortest payback as an automatic choice.