Discounted Payback Period Calculator

This calculator estimates the discounted payback period: the time (in years) required for the cumulative present value of cash inflows to recover the initial investment. It discounts each annual cash flow using the user-provided discount rate and applies linear interpolation inside the payback year for a fractional-year result.

Use this tool for preliminary project screening and comparison of mutually exclusive investments. The discounted payback provides a time-based risk perspective by accounting for the time value of money, but it does not measure total project profitability beyond the payback horizon.

Updated Nov 3, 2025

Discount cash flows for each year, compute cumulative discounted cash flows, and determine the first year where cumulative discounted inflows equal or exceed the initial investment. Uses linear interpolation within the year to estimate fractional years.

Inputs

Initial investment (cost)

Min 0

Discount rate (%)

Min 0 · Max 100

Number of annual periods to include (1–10)

Min 1 · Max 10

Cash flow year 1 (positive = inflow, negative = outflow)Cash flow year 2 (positive = inflow, negative = outflow)Cash flow year 3 (positive = inflow, negative = outflow)Cash flow year 4 (positive = inflow, negative = outflow)Cash flow year 5 (positive = inflow, negative = outflow)Cash flow year 6 (positive = inflow, negative = outflow)Cash flow year 7 (positive = inflow, negative = outflow)Cash flow year 8 (positive = inflow, negative = outflow)Cash flow year 9 (positive = inflow, negative = outflow)Cash flow year 10 (positive = inflow, negative = outflow)

Results

Updates as you type

Discounted payback period (years)

—

Output	Value	Unit
Discounted payback period (years)	—	years

Primary result—

Visualization

Points

Methodology

We discount each annual cash inflow by (1 + r)^t where r is the discount rate in percent divided by 100 and t is the year number. Cumulative discounted cash flow is calculated year-by-year until it equals or exceeds the initial investment.

When cumulative discounted cash flow crosses the initial investment during year t, a linear interpolation inside that year is used to estimate fractional years: payback = (t-1) + (remaining_to_recover / discounted_cash_flow_in_year_t).

This implementation is a discrete, annual schedule calculator (not a continuous-time model). It supports up to ten annual periods. For monthly cash flows, irregular schedules, tax effects, salvage values, or probabilistic modelling, use more detailed NPV/IRR analyses or specialized financial modelling tools.

Worked examples

Example: Initial investment 100,000; discount rate 10%; annual inflows 30,000 for 5 years. The calculator discounts each inflow and finds cumulative discounted inflows exceed 100,000 during year 4, then interpolates to give a fractional payback year (e.g., 3.7 years).

If discounted cash flows are zero or negative for all provided years, the calculator will return no payback result within the entered horizon.

Further resources

External guidance

Expert Q&A

What is the difference between payback period and discounted payback period?

The undiscounted payback period uses raw cash flows and ignores the time value of money. The discounted payback period discounts each cash flow at the chosen discount rate before summing, so it accounts for the time value of money.

Why might the calculator return no result (null)?

If cumulative discounted cash inflows do not reach the initial investment within the number of years you entered, the payback cannot be determined from the provided horizon. Increase the number of periods or review cash flow inputs.

How accurate is the interpolation inside the year?

Interpolation assumes cash receipts are received uniformly across the year. This is a common practical approximation; if cash flows are lumped at specific sub-annual dates (monthly, quarterly), a higher-resolution schedule should be used.

Are there any verification or accuracy standards for this calculator?

This calculator follows general software quality and verification best practices. For numerical verification, refer to ISO/IEC software quality standards and IEEE recommendations for numerical software testing. See citations for authoritative sources.

Sources & citations

NIST - National Institute of Standards and Technology — https://www.nist.gov
ISO - International Organization for Standardization — https://www.iso.org
IEEE - Institute of Electrical and Electronics Engineers — https://www.ieee.org
OSHA - Occupational Safety and Health Administration — https://www.osha.gov