How this calculator works
Simple payback is the cost divided by the yearly cash flow, for a constant cash flow: $20,000 ÷ $4,500 = 4.44 years.
If the yearly saving grows, for example with rising energy prices, each year’s cash flow is increased by that rate.
Discounted payback values future savings at less than today’s money, using your discount rate, so it is always longer.
Payback ignores everything after the break-even point, so compare investments with NPV too.
Worked example
$20,000 project saving $4,500 a year
- Simple payback: 4.44 years.
- At a 6% discount rate: about 5.33 years.
- With savings growing 3% a year, payback comes sooner.
Questions people ask
What is a good payback period?
It depends on the asset’s life. A payback well inside the useful life, such as 5 years for equipment lasting 15, is generally attractive.
What does payback leave out?
Cash flows after break-even, the asset’s remaining value and risk. Use it as a quick screen alongside NPV or IRR.
How do tax breaks affect payback?
Deductions such as bonus depreciation reduce the effective cost and shorten payback. The depreciation calculator estimates them.
Why use a discounted payback?
It recognises that $1 saved in year five is worth less than $1 today, giving a more realistic break-even.
Last reviewed October 2, 2026