How to find payback period?

[tonny]

I’m trying to understand how to calculate the payback period for a project or investment. I know it’s supposed to show how long it takes to recover the initial investment, but I’m a bit confused about the actual formula and process.

Can someone explain how to find the payback period step-by-step? Also, how does it differ when cash inflows are uneven versus when they’re the same each year? Would love to see a simple example or any tips for interpreting the results.

 

[Rick_Grimes]

To find the payback period, just divide your initial investment by the yearly cash inflow (if it’s the same each year). If it’s uneven, keep adding each year’s cash flow until you recover the full amount. The year where it breaks even is your payback period.

 

[peterkavinsky]

To find the payback period, divide the initial investment by the annual cash inflow. The result shows how many years it takes to recover the investment cost.

 

[Gsusangrey]

The amount of time it takes for an investment's cash flows to cover its initial cost is known as the payback period.

1. With even cash flows: Divide the initial investment by the annual net cash flow .
2. With uneven cash flows: Add up the cash flows from year to year until the total matches the initial investment.

 

[isabel]

The payback period is the time during which it recovers its investment -divide the cost by the cash inflow per year when it is equal, or add up yearly cash inflows until they equal the investment when it is unequal. It is a fast method of finding the break even point.