The Payback Period Calculator calculates the total time period in which a project repays its initial investment. It is an investment appraisal technique that determines the number of years it takes a project to cover its initial capital outlay or cash outflow. It is not wrong to say that the payback period is the break-even point of a project. In this period, the outflow of funds from a project is equal to the inflow of funds.
You can easily understand this concept using an example. Suppose you have invested $2,500 in Project X and earn $750 at the end of each year. Therefore, Project X will take 3.33 years, i.e., $2500 / $750. At this level, the total inflows from the project are equal to the total outflow for the project.
The payback period can be calculated by dividing the initial investment from the total annual cash flow.
Payback Period = Initial investment / Total annual cash flow from the project.
Payback Period Calculator
How to Calculate using Calculator?
To use the payback period calculator, the user must provide the following data to the calculator:
Initial Investment – It is the amount that the investor invests in the project in order to profit from this project. The important point to note is that it is not the first cash outflow but the total outflow/spend to bring the project to the operational stage. And that may be in one year or more.
Total Annual Cash Flows – It is the sum of the cash flow that the investor earns at the end of each year, which is the denominator of the formula.
