Calculate the Payback Period A hospital is trying to determine the payback period for a piece of X-Ray equipment it is purchasing. The assumptions are: Assumptions 1 Purchase price of equipment 400,000 2 Useful life of equipment 10 years 3 Revenue the machine will generate per year 10,000 4 Direct operating costs associated with earning the revenue 75,000 5 Depreciation Expense per year 40,000 Using the above five assumptions, calculate how many years it will take to recoup the original investment. Step 1 Find the machine's expected net income 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