Payback Period Calculator

✖The Initial Investment is the amount required to start a business or a project.ⓘ Initial Investment [Initial Invt]			+10% -10%
✖Cashflow per Period refers to the amount of money that is either received or paid out at regular intervals.ⓘ Cashflow per Period [C_f]			+10% -10%

✖Payback Period is a financial metric used to evaluate the time it takes for an investment to generate enough cash flow to recover its initial cost.ⓘ Payback Period [PBP]

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Formula

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Payback Period

Formula

`"PBP" = "Initial Invt"/"C"_{"f"}`

Example

`"1.333333"="2000"/"1500"`

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Payback Period Solution

STEP 0: Pre-Calculation Summary

Formula Used

Payback Period = Initial Investment/Cashflow per Period
PBP = Initial Invt/C_f
This formula uses 3 Variables

Variables Used

Payback Period - Payback Period is a financial metric used to evaluate the time it takes for an investment to generate enough cash flow to recover its initial cost.
Initial Investment - The Initial Investment is the amount required to start a business or a project.
Cashflow per Period - Cashflow per Period refers to the amount of money that is either received or paid out at regular intervals.

STEP 1: Convert Input(s) to Base Unit

Initial Investment: 2000 --> No Conversion Required
Cashflow per Period: 1500 --> No Conversion Required

STEP 2: Evaluate Formula

Substituting Input Values in Formula

PBP = Initial Invt/C_f --> 2000/1500

Evaluating ... ...

PBP = 1.33333333333333

STEP 3: Convert Result to Output's Unit

1.33333333333333 --> No Conversion Required

FINAL ANSWER

1.33333333333333 ≈ 1.333333 <-- Payback Period

(Calculation completed in 00.004 seconds)

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Created by Vishnu K

BMS College of Engineering (BMSCE), Bangalore

Vishnu K has created this Calculator and 200+ more calculators!

Verified by Kashish Arora

Satyawati College (DU), New Delhi

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< 18 Capital Budgeting Calculators

Overall Cost of Capital

Go Overall Cost of Capital = (Market Value of the Firm’s Equity)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Required Rate of Return+(Market Value of the Firm’s Debt)/(Market Value of the Firm’s Equity+Market Value of the Firm’s Debt)*Cost of Debt*(1-Tax Rate)

Discounted Payback Period

Go Discounted Payback Period = ln(1/(1-((Initial Investment*Discount Rate)/Periodic Cash Flow)))/ln(1+Discount Rate)

Net Present Value (NPV) for even cash flow

Go Net Present Value (NPV) = Expected Cash Flow*((1-(1+Rate of Return)^-Number of Periods)/Rate of Return)-Initial Investment

Capital Asset Pricing Model

Go Expected Return on Investment = Risk Free Rate+Beta on Investment*(Expected Return on Market Portfolio-Risk Free Rate)

Double Declining Balance Method

Go Depreciation Expense = (((Purchase Cost-Salvage Value)/Useful Life Assumption)*2)*Beginning PP&E Book Value

Modified Internal Rate of Return

Go Modified Internal Rate of Return = 3*((Present Value/Cash Outlay)^(1/Number of Years)*(1+Interest)-1)

Cost of Retained Earnings

Go Cost of Retained Earnings = (Dividend/Current Stock Price)+Growth Rate

After-Tax Cost of Debt

Go After Tax Cost of Debt = (Risk Free Rate+Credit Spread)*(1-Tax Rate)

Beginning Inventory

Go Beginning Inventory = Cost of Goods Sold-Purchases+Ending Inventory

Terminal Value using Perpetuity Method

Go Terminal Value = Free Cash Flow/(Discount Rate-Growth Rate)

Trade Discount

Go Trade Discount = multi(List Price,Trade Discount Rate)

Expected Monetary Value

Go Expected Monetary Value = multi(Probability,Impact)

Accounting Rate of Return

Go Accounting Rate of Return = (Average Annual Profit/Initial Investment)*100

Inventory Carrying Cost

Go Inventory Carrying Cost = (Total Carrying Cost/Total Inventory Value)*100

Certainty Equivalent Cashflow

Go Certainty Equivalent Cashflow = Expected Cash Flow/(1+Risk Premium)

Payback Period

Go Payback Period = Initial Investment/Cashflow per Period

Terminal Value using Exit Multiple Method

Go Terminal Value = EBITDA at Last Period*Exit Multiple

Cost of Debt

Go Cost of Debt = Interest Expense*(1-Tax Rate)

Payback Period Formula

Payback Period = Initial Investment/Cashflow per Period
PBP = Initial Invt/C_f

What is Payback Period?

The payback period is a financial metric used to evaluate the time it takes for an investment to recoup its initial cost through the cash flows it generates. It measures the length of time required for an investment to repay its initial outlay, making it a straightforward measure of investment risk and liquidity. The calculation involves dividing the initial investment cost by the annual cash flows generated by the investment. The payback period is expressed in years or months, depending on the duration of the investment and the frequency of cash flows.

Investors typically use the payback period to assess the risk associated with an investment by comparing it to other investment opportunities. A shorter payback period is generally preferred as it indicates a quicker return of the initial investment. However, the payback period does not consider the time value of money, inflation, or cash flows beyond the payback period, which limits its effectiveness as a comprehensive investment evaluation tool.

How to Calculate Payback Period?

Payback Period calculator uses Payback Period = Initial Investment/Cashflow per Period to calculate the Payback Period, The Payback Period formula is defined as a financial metric used to assess the time it takes for an investment to generate cash flows sufficient to cover its initial cost. Payback Period is denoted by PBP symbol.

How to calculate Payback Period using this online calculator? To use this online calculator for Payback Period, enter Initial Investment (Initial Invt) & Cashflow per Period (C_f) and hit the calculate button. Here is how the Payback Period calculation can be explained with given input values -> 1.333333 = 2000/1500.

FAQ

What is Payback Period?

The Payback Period formula is defined as a financial metric used to assess the time it takes for an investment to generate cash flows sufficient to cover its initial cost and is represented as PBP = Initial Invt/C_f or Payback Period = Initial Investment/Cashflow per Period. The Initial Investment is the amount required to start a business or a project & Cashflow per Period refers to the amount of money that is either received or paid out at regular intervals.

How to calculate Payback Period?

The Payback Period formula is defined as a financial metric used to assess the time it takes for an investment to generate cash flows sufficient to cover its initial cost is calculated using Payback Period = Initial Investment/Cashflow per Period. To calculate Payback Period, you need Initial Investment (Initial Invt) & Cashflow per Period (C_f). With our tool, you need to enter the respective value for Initial Investment & Cashflow per Period and hit the calculate button. You can also select the units (if any) for Input(s) and the Output as well.

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