How do you calculate the discounted payback period?

Discount each cash flow by (1 + r)t, add the discounted flows cumulatively and find when the total turns positive. Payback = A + B ÷ C using the discounted figures.

Why is discounted payback longer than simple payback?

Discounting reduces every future cash flow, so it takes longer for the reduced flows to add up to the investment.

Does discounted payback ignore later cash flows?

Yes, like the simple method it ignores flows after the payback year. The final cumulative value in the table is the NPV, which includes them.

What discount rate should I use?

The same required return you would use for NPV, often the cost of capital.

Discounted Payback Period Formula

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Discounted Payback Period Calculator

The discounted payback period is the time needed for the present value of an investment’s cash inflows to repay its cost. It improves on the simple payback period by recognising that a dollar received in year four is worth less than a dollar today, so it always gives a longer payback than the undiscounted method.

Formula

Discounted payback = A + BC using discounted cash flows CF_t(1 + r)^t

Where

A: last full period before the cumulative discounted cash flow turns positive
B: amount still unrecovered at the end of period A
C: discounted cash flow during period A + 1
r: discount rate per period

Calculator

Initial investment

Cash inflows for periods 1, 2, 3, …

Separate values with commas, spaces or new lines.

Discount rate (r) (%)

Result and step-by-step solution

Discounted payback period

3.96 periods

The 50,000.00 investment is recovered 11.6 months into period 4 (if periods are years).

Start from the investment
Cumulative position at time 0 = −50,000.00
Add each period’s discounted cash flow
Period Cash flow Discounted (10%) Cumulative
1 12,000.00 10,909.09 −39,090.91
2 15,000.00 12,396.69 −26,694.21
3 18,000.00 13,523.67 −13,170.55
4 20,000.00 13,660.27 489.72
5 10,000.00 6,209.21 6,698.93
Find the period where the total turns positive
After period 3 there is 13,170.55 left to recover; period 4 brings in 13,660.27.
Interpolate within that period
Payback = 3 + 13,170.5513,660.27 = 3 + 0.9642 = 3.9642 periods

Period	Cash flow	Discounted (10%)	Cumulative
1	12,000.00	10,909.09	−39,090.91
2	15,000.00	12,396.69	−26,694.21
3	18,000.00	13,523.67	−13,170.55
4	20,000.00	13,660.27	489.72
5	10,000.00	6,209.21	6,698.93

How to use the formula

Each cash flow is first divided by (1 + r)^t. The discounted flows are then added up year by year, and the payback is found exactly as in the ordinary method: the last year with a negative running total plus the unrecovered amount divided by the next year’s discounted flow. If the running total never reaches zero within the cash flows entered, the project does not pay back in present-value terms, which also means its NPV is negative.

Using the same example as the payback period calculator with a 10% discount rate, the investment is recovered after 3.96 years instead of 3.25. The final cumulative figure in the table is the project’s NPV, 6,698.93, which is a handy cross-check.

Frequently asked questions

How do you calculate the discounted payback period?: Discount each cash flow by (1 + r)^t, add the discounted flows cumulatively and find when the total turns positive. Payback = A + B ÷ C using the discounted figures.
Why is discounted payback longer than simple payback?: Discounting reduces every future cash flow, so it takes longer for the reduced flows to add up to the investment.
Does discounted payback ignore later cash flows?: Yes, like the simple method it ignores flows after the payback year. The final cumulative value in the table is the NPV, which includes them.
What discount rate should I use?: The same required return you would use for NPV, often the cost of capital.

Last reviewed: September 26, 2026. Calculations run in your browser and were checked against numpy-financial, SciPy and published spreadsheet examples.