The Payback Period is the time that it takes for a Capital Budgeting project to recover its initial cost. Usually, the project with the quickest payback is preferred. In this calculation, the Net cash flows (NCF) of the project must first be estimated. Payback period can be calculated by dividing the total investment cost by the annual net cash flow. Here is the simple online calculator to calculate the payback period by giving the initial investment amount and the annual cash flow.
A person invested an initial amount of 50000 INR and the average annual cash flow for 1st year is 1000, 2nd year is 10000 and 3rd year is 15000.
Average Annual Cash Flows = (1000 + 10000 + 15000) / 3
= 26000 / 3
Payback period = 50000 / 8666.66