Formula
Initial investment = purchase + implementation. Net annual benefit = labor savings + other benefits − annual operating cost. Payback = initial investment ÷ net annual benefit. Horizon ROI = (net annual benefit × years − initial investment) ÷ initial investment.
What the result means
Simple payback is the time required for undiscounted annual benefits to recover the initial investment. It ignores financing, tax, depreciation, residual value, and changes over time.
Use a discounted cash-flow model for capital approval when the timing of cash flows, cost of capital, or tax treatment is material.