# How to Calculate Project Payout Time

The project payout time or payback period, is the amount of time it will take a project to bring cash inflows equal to the cash outflows for the project. This calculation is useful for business managers to determine how long it will take a project to be profitable. In addition, firms can compare two projects by payback period and accept the project with the shorter payback period.

## Step 1.

Determine the cost for the project. For example, Firm A wants to buy a $20,000 printing press.

## Step 2.

Determine the annual cash inflows. In our example, Firm A's accountants determine if Firm A buys the new printing press, Firm A will increase revenues by $4,000 each year.

## Step 3.

Divide the cost by the annual cash flow. In our example, $20,000 divided by $4,000 equals five years. It will take the project five years to become profitable.