Last updated 25th Apr 2022
- Last Updated: Sunday, 18 November 2018
Calculator DefinitionsThe variables used in our online calculator are defined in detail below, including how to interpret the results.
Initial Investment ($)
Cash Flow from Investment ($ / Time Period)This is the cash flow, or money, that you receive in each time period. A time period can be any length such as a year, quarter, month, week or day.
Number of Time PeriodsThis is the total number of time periods that you receive the cash flow entered earlier. Please note that the definition (year, quarter, month, week, and day) must be consistent throughout this example.
Opportunity Cost (% / Time Period)This is the opportunity cost, or alternative, you have in addition to this investment. For example, if you could invest the money in a bond, or place it in a bank account at 4% rate of interest, then your opportunity cost is 4%.
Final Value of the Investment ($)This is the final value returned to you at the end of the investment period. For example, if you invested $1,000 in a bond and that $1,000 was returned at the bond's expiration, then enter that amount here. For an asset, this could be the salvage value, or current market value, of the investment. Keep in mind this value can be zero in some cases.
Simple Payback (Time)This is the simple payback, stated in terms of time periods. The payback method usually requires a threshold number of periods before an investment is considered acceptable. One of the flaws with the payback method is that it ignores the time value of money.
Discounted Cash FlowsA second payback method is one that uses discounted cash flows. This calculator can accommodate up to ten time periods or years of discounted cash flows.
Discounted Payback (Time)This is the discounted payback, stated in terms of time periods. The discounted payback method recognizes the time value of money. However this calculation shows us the second major flaw with the payback method: It does not recognize cash returns in excess of the calculated payback period. For example, if the payback is 5 years, the method does not account for cash flows after year 5.
Disclaimer: These online calculators are made available and meant to be used as a screening tool for the investor. The accuracy of these calculations is not guaranteed nor is its applicability to your individual circumstances. You should always obtain personal advice from qualified professionals.