Estimate how long a purchase takes to pay for itself after tax savings or rebates.
Use this calculator to test a purchase, such as a delivery van, an oven, a machine or software, before you commit. It answers one question: how long until the benefit has paid back what you spent?
How it works. Net cost equals the purchase cost minus any tax savings, rebates or trade-in value you enter. The calculator then adds the yearly benefit, growing it by the yearly change you choose, until the running total reaches the net cost. That year is the payback period. Total benefit is the sum of the yearly benefits across the evaluation horizon.
Worked example (illustrative inputs). A $30,000 machine with $3,000 in tax savings has a net cost of $27,000. If it adds $7,500 of profit in year one and that grows 2% a year, the running total passes $27,000 during the fourth year, so payback is about three and a half years. Over seven years the total benefit is about $55,800.
Limits. Payback ignores what happens after it is reached, ignores the time value of money, and does not include financing costs, maintenance, insurance, downtime or the machine wearing out. Treat the benefit figure as your biggest assumption, and run a cautious case with a lower benefit before you decide.
How to Calculate and Plan
Calculate simple and discounted payback, ROI and the buy vs. lease question for business equipment, including how tax deductions like Section 179 change the math.
