3 4 Calculate the Payback Period 5 6 The payback period is the length of time required for the cash to be coming in from an investment 7 to equal the amount of cash originally spent when the invest ment was acquired. 8 10 Assumptions 11 1 Purchase price of equipment $ 1,200,000 12 13 2 Useful life of equipment 12 years 14 15 3 Revenue the machine will generate per year $ 15,000 16 17 4 Direct operating costs associated with earning 18 $ the revenue 250,000 19 5 Depreciation Expense per year $ 100,000 21 22 23 24 25 Using the above five assumptions, calculate how many years it will take to recoup the 26 original investment. Davhack Donrocation. A E G H Using the above five assumptions, calculate how many years it will take to recoup the original investment. Find the machine's expected net income Step 1 Revenue Less: Direct Operating Costs Depeciation Net Income Step 2 Find the net annual cash inflow the machine is expected to generate (convert net income to cash basis) $ $ Net Income Add back Depreciation Annual Net Cash Inflow $ Step 3 Compute the payback period Investment Net Annual $ Cash Inflow 3 4 Calculate the Payback Period 5 6 The payback period is the length of time required for the cash to be coming in from an investment 7 to equal the amount of cash originally spent when the invest ment was acquired. 8 10 Assumptions 11 1 Purchase price of equipment $ 1,200,000 12 13 2 Useful life of equipment 12 years 14 15 3 Revenue the machine will generate per year $ 15,000 16 17 4 Direct operating costs associated with earning 18 $ the revenue 250,000 19 5 Depreciation Expense per year $ 100,000 21 22 23 24 25 Using the above five assumptions, calculate how many years it will take to recoup the 26 original investment. Davhack Donrocation. A E G H Using the above five assumptions, calculate how many years it will take to recoup the original investment. Find the machine's expected net income Step 1 Revenue Less: Direct Operating Costs Depeciation Net Income Step 2 Find the net annual cash inflow the machine is expected to generate (convert net income to cash basis) $ $ Net Income Add back Depreciation Annual Net Cash Inflow $ Step 3 Compute the payback period Investment Net Annual $ Cash Inflow