How To Calculate Payback Period In Cost Benefit Analysis

Introduction & Importance

Payback period in cost benefit analysis is a crucial metric that helps businesses and investors understand the time it takes to recover the initial investment…

How to Use This Calculator

1. Enter the initial cost of the project or investment.
2. Enter the expected annual cash flow.
3. Enter the discount rate.
4. Click ‘Calculate’.

Formula & Methodology

The formula for calculating the payback period is:

Payback Period = Initial Cost / Annual Cash Flow

However, to account for the time value of money, we use the discounted payback period formula:

Payback Period = -ln(Initial Investment / Annual Cash Flow) / Discount Rate

Real-World Examples

Data & Statistics

Project	Initial Cost	Annual Cash Flow	Discount Rate	Payback Period

Expert Tips

• Consider the risk profile of the project.
• Use the discounted payback period for more accurate results.
• Compare the payback period with the project’s expected life.

Interactive FAQ

What is the difference between simple and discounted payback period?

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Learn more about payback period from the U.S. Government

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