Finance & Interest
Basic

Payback Period

Time to recover an investment.

Formula

PP=Initial InvestmentAnnual Cash FlowPP = \frac{\text{Initial Investment}}{\text{Annual Cash Flow}}

Variables

InvestmentUpfront cost
Cash FlowAnnual return

Example

$10k ÷ $2.5k = 4 yr

Did You Know?

The payback period is the simplest investment test: how long until you get your money back.

investment