Instructions: Use this Payback Period Calculator to compute the Payback Period (\(PP\)) of a stream of cash flows by indicating the yearly cash flows (\(F_t\)), starting at year \(t = 0\):
About this Payback Period Calculator
More about the Payback period calculator so you can better understand the way of using this calculator: The payback period of a stream of cash flows \(F_t\) is number of years it takes a project to break even. Typically, projects require a cash outlay at the beginning (\(t = 0\)), and they typically receive positive cash inflows until the amount received equals the initial outlay. They time that takes is called payback period
How do you calculate the payback period?
The methodology is simple: You need to compute the cumulative cash flows, and find the period where the cumulative cash flows first turn from negative to positive. Then, an interpolation is conducted to estimate the exact portion of year needed to reach a cumulative cash flow equal to zero.
What is simple payback and when do we use discounting?
Observe that this calculator uses the flows without discounting. In other words, you are computing a payback period without a discount rate. If you want to get use discounted cash flows, you should probably use our discounted payback period calculator, in which the methodology is exactly the same, only that in order to compute cumulative flows, the discounted cash flows are considered instead.
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