How this calculation works
Accumulate each annual inflow until it covers the starting cost. Interpolate the recovery year using the stated uniform-flow convention. Repeat with end-year discounted inflows for an approximate discounted payback.
Payback = earlier full years + unrecovered cost / recovery-year inflowA worked example
A ₹1,000 cost followed by ₹600 per year recovers after one full year plus ₹400/₹600 of the second year, or about 1.666667 years at zero discount.
Good to know
Only non-negative annual inflows are accepted. Partial-year values are interpolations. Discounted interpolation prorates the end-year discounted amount and is not exact dated discounting. Inflows beyond the list are not assumed.
Reference: OpenStax: payback period and its limitations (opens in a new tab) ↗
Uneven receipts need a running total
A simple initial-cost divided by one annual-receipt formula works only when receipts are level. For uneven inflows, add the amounts year by year until the cumulative total reaches the initial cost.
With cost ₹1,000 and annual inflows ₹600 and ₹600, one complete year recovers ₹600. The remaining ₹400 is two thirds of the next ₹600, giving an interpolated simple payback of 1.666667 years.
The annual cash flow NPV calculator also includes cash flows after recovery, which the payback time alone cannot represent.
Discounted recovery takes account of timing
The discounted result first converts each year-end inflow to present value, then applies the same recovery-year interpolation. With a positive discount rate, later amounts contribute less to recovering a present cost.
The annual cash flow NPV calculator includes the whole entered stream in one net-value result. Payback instead emphasizes when a starting amount is recovered and does not reward additional receipts after that point.
The fraction of a year is an explicit approximation
Partial-year payback assumes a uniform allocation of the recovery-year amount. The discounted version prorates that year’s end-year discounted receipt; it does not solve the exact present value of payments arriving continuously within the year.
The page accepts only non-negative annual net inflows. It does not infer future receipts beyond the list or guarantee recovery when the final cumulative total is short. A shortfall remains a shortfall rather than an extrapolated completion date.
A few questions, answered
Why can payback be unavailable?
The entered inflows do not recover the initial amount within the supplied years.
Does earlier payback always mean higher value?
No. Payback omits later receipts as a decision measure and does not replace a full NPV comparison.
Does zero annual inflow cause division by zero?
No. A zero inflow cannot be the recovery year, so the search continues.