Cost-Benefit Analysis Calculator

Payback Period simply divides project cost by the annual benefit with no discounting at all, answering how quickly raw dollars are recovered. NPV discounts each year's benefit back to present value first, so the true break-even point in discounted terms — when cumulative discounted benefits finally exceed the cost — always comes later than the simple payback figure suggests, sometimes considerably later at higher discount rates.

It means the present value of the project's benefits exceeds its cost — the same underlying conclusion as a positive NPV, just expressed as a ratio rather than a dollar amount. Expressing it this way makes it easier to compare projects of very different sizes on equal footing, since a small project with a 1.5 ratio and a huge project with the same ratio are both equally economically justified relative to their own cost.

IRR is found numerically as the discount rate at which the project's NPV would equal exactly zero, calculated independently of whatever discount rate you entered for the main NPV figure. If IRR comes out higher than your entered discount rate, the project clears that hurdle rate and shows a positive NPV; if IRR is lower, the project falls short and NPV comes out negative.

Federal guidance from the Office of Management and Budget has historically suggested a range of roughly 3-7% for public sector cost-benefit analysis, reflecting the social opportunity cost of capital rather than a private firm's cost of borrowing. Many state and local agencies adopt their own guidance within or near that range, so check whether your jurisdiction specifies a required rate before finalizing an analysis.