Assumptions and method
Fractional periods assume uniform receipt within the recovery period. Payback ignores later value; unrecovered investments return Not defined.
Test a scenario
Use the result in a decision
Use consistent currency, timing and price assumptions.
Fractional periods assume uniform receipt within the recovery period. Payback ignores later value; unrecovered investments return Not defined.
Set a baseline and change one assumption to compare outcomes.
A worked example
Follow the fixed teaching example
- After two periods, receipts total 4,500 + 5,000 = 9,500.
- The unrecovered amount is 12,000 − 9,500 = 2,500. Simple payback = 2 + 2,500/5,500 ≈ 2.4545 periods, assuming receipts accrue evenly within that period.
These illustrative inputs describe a project scenario, not a published benchmark. All monetary inputs use the same currency and price basis.
- Initial outlay
- 12000
- Discount rate per period (%)
- 6
- Period-end receipts
- 4500, 5000, 5500, 3000
- Simple payback
- 2.4545 periods
- Discounted payback
- 2.7156 periods
Interpret the output only within the assumptions above. Changing the inputs changes the result; it does not validate the inputs.
Source & credit
Standard financial mathematics; no single inventor is asserted.
OpenStax: Principles of Finance, capital budgeting
This is independently written code and explanation of the underlying method. The linked publication, its diagrams and its trademarks remain its owner’s material; no permission to reuse them is implied.