Discounted Payback Period Calculator
Unlike simple payback, the discounted payback period accounts for the time value of money to show true economic break-even.
The project earns more than the required return at the selected discount rate. Value is expected to be added to the firm.
Bars: present value of each period (Year 0 is initial outlay). Polyline: running cumulative total. When the line crosses zero, the project achieves economic break-even in today's money.
| Year | Cash flow | Discount factor | Present value | Running total |
|---|---|---|---|---|
| Year 0 | -$1,000,000 | 1.0000 | -$1,000,000 | -$1,000,000 |
| Year 1 | $300,000 | 0.9091 | $272,727 | -$727,273 |
| Year 2 | $3,500,000 | 0.8264 | $2,892,562 | $2,165,289 |
| Year 3 | $78,567 | 0.7513 | $59,029 | $2,224,318 |
| Year 4 | $5,464,755 | 0.6830 | $3,732,501 | $5,956,819 |
| Year 5 | $300,000 | 0.6209 | $186,276 | $6,143,095 |
| Discount Rate | Scenario | Net Present Value | Variance vs Base | Viability |
|---|---|---|---|---|
| 6.0% | -400 bps | $7,016,748 | +$873,653 | Accept |
| 8.0% | -200 bps | $6,561,766 | +$418,670 | Accept |
| 9.0% | -100 bps | $6,348,127 | +$205,032 | Accept |
| 10.0%Active | Base Case (Active) | $6,143,095 | — (Base) | Accept |
| 11.0% | +100 bps | $5,946,235 | -$196,860 | Accept |
| 12.0% | +200 bps | $5,757,137 | -$385,959 | Accept |
| 14.0% | +400 bps | $5,400,709 | -$742,386 | Accept |
| 129.8%IRR | Break-Even (IRR) | $0 | -$6,143,095 | Break-Even |
Sensitivity analysis reveals how NPV shifts when corporate borrowing costs or inflation vary. As the discount rate increases, present value decreases.
Formula & Calculation Logic
Discounted Payback = Period before recovery + (Unrecovered PV at start of year / PV of cash flow during year)This financial model applies precise periodic compounding to establish the exact present economic value of future cash inflows against the required initial investment.
Key Capabilities & Features
- Exact fractional year break-even estimation
- Direct comparison to simple payback
- Running total zero-crossover highlight on chart
Frequently Asked Questions
How is NPV calculated step-by-step?
To calculate NPV step-by-step: 1. Identify the Year 0 initial investment outlay ($I_0$). 2. Estimate the expected net cash flow ($CF_t$) for each period $t = 1, 2, \dots, n$. 3. Determine the appropriate annual discount rate ($r$). 4. For each period, calculate the discount factor: $1 / (1 + r)^t$. 5. Multiply each cash flow by its discount factor to obtain its Present Value ($PV_t$). 6. Sum all present values: $PV_{\text{inflows}} = \sum PV_t$. 7. Subtract initial investment: $NPV = PV_{\text{inflows}} - I_0$.
Can NPV be negative and what does it mean?
A negative Net Present Value indicates that the projected cash inflows, when discounted at the selected hurdle rate, fail to recover the initial investment outlay and capital costs. It does NOT necessarily mean the project loses nominal money—it means the investment earns a rate of return strictly lower than the required discount rate. For instance, if your discount rate is 12% and the project earns 8%, the nominal cash flow may be positive, but the NPV will be negative.