# Discounted Payback Period Calculator

Discounted payback is something that investors use. It is a useful way to work out how long it takes to get your capital back from the cash flows. It shows the number of years you will need to get that money back based on present returns. Each present value cash flow is calculated and then added together. The result is the discounted payback period. Our calculator uses the time value of money so you can see how well an investment is performing.

We will call this the DPP. The calculator below helps you to work out from the amount you initially invest, the discount rate, and the number of years.

We have made it easy for you to use and get the right DPP figures –

- Choose your currency from the list (this step is optional)
- Key in the amount of your investment
- Put in the discount rate and the years of cash flow
- The last step is to input the annual cash flow for each year
- Then click "Calculate" to see the answer

## The Discounted Payback Period (DPP) Formula and a Sample Calculation

We use two other figures in this calculation – the PV or Present Value and the CF or Cash Flow. We begin from the first year as the starting point.

You need to specify a set discount rate for the calculation. This can be worked out in the following way:

**Discounted Cash Flow (or DCF) is the Actual Cash Inflow / [1 + i]^n**- Where,
**i**- denotes the discount rate used.**n**- denotes the time period relating to the cash inflows.

So, the two parts of the calculation (the cash flow and PV factor) are shown above. We can conclude from this that the DCF is the calculation of the PV factor and the actual cash inflow.

**The Discounted Payback Period (or DPP) is X + Y/Z**- In this calculation:
- X = is the last time period where the cumulative discounted cash flow (CCF) was negative
- Y = is the absolute value of the CCF at the end of that period X
- Z = is the value of the DCF in the next period after X

The DPP method can be seen in the example set out here –

Initially an investment of $100,000 can be expected to make an income of $35k per annum for 4 years. If the discount rate is 10% then we can calculate the DPP.

**Step 1:** The DCF for each period is calculated as follows - we multiply the actual cash flows with the PV factor. From that we can derive the discounted cash flows on a cumulative basis.

Year (n) | Cash Flow (CF) | Net Cash Flow (NCF) | PV Factor PV= 1/(1+i) ^{n} |
Discounted Cash Flow DCF = CF x PV |
Cumulative Discounted Cash Flow (CCF) |
---|---|---|---|---|---|

0 | -100000 | -100000 | 1 | -100000 | -100000 |

1 | 35000 | -65000 | 0.91 | 31818.18 | -68181.82 |

2 | 35000 | -30000 | 0.83 | 28925.62 | -39256.2 |

3 | 35000 | 5000 | 0.75 | 26296.02 | -12960.18 |

4 | 35000 | 40000 | 0.68 | 23905.47 | 10945.29 |

**Step 2:** The DPP is X + Y/Z = 3 + |-12,960.18| / 23,905.47 ≈ 3.54 years

The Discounted Payback Period is 3.54 years.