A 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 investment was acquired. 8 9 Assumptions 10 1 Purchase price of equipment $ 350,000 11 10 years 12 2 Useful life of equipment 13 $ 10,000 14 3 Revenue the machine will generate per year 15 16 4 Direct operating costs associated with earning the revenue $ 75,000 17 18 19 5 Depreciation Expense per year $ 15,000 920 Question 15 Question19 Ready W Type here to search o up B 24 Using the above five assumptions, calculate how many years it will take to recoup the 25 original investment. 26 Step 1 Find the machine's expected net income 27 Revenue 28 Less: 29 Direct Operating costs 30 Depeciation 31 Net Income 33 34 Step 2 Find the net annual cash inflow the machine is expected to generate (convert net income to cash basis) 35 36 37 38 $ Net Income Add back Depreciation Annual Net Cash Inflow 39 $ 40 Step 3 Compute the payback period 42 3 = 44 45 Investment Net Annual Cash Inflow