G D A Calculate the Payback Period 4 5 6 The payback period is the length of time required for the cash to be coming in from an investment to equal the amount of cash originally spent when the investment was acquired. 7 8 9 Assumptions 10 11 $ 1,200,000 1 Purchase price of equipment 12 13 12 years 2 Useful life of equipment 14 15 $ 15,000 3 Revenue the machine will generate per year 16 17 4 Direct operating costs associated with earning 18 250,000 the revenue 19 20 100,000 5 Depreciation Expense per year 21 22 23 24 25 Using the above five assumptions, calculate how many years it will take to recoup the 26 original investment. 27 Find the machine's expected net income Step 1 28 29 Revenue 30 Less: 31 Direct Operating Costs 32 Depeciation 33 Net Income 34 35 36 Find the net annual cash inflow the machine is Step 2 37 L12 E F G H A 25 Using the above five assumptions, calculate how many years it will take to recoup the 26 original investment. 27 Step 1 Find the machine's expected net income 28 29 Revenue 30 Less: 31 Direct Operating Costs 32 Depeciation 33 34 $ Net Income 35 36 Step 2 Find the net annual cash inflow the machine is 37 38 expected to generate (convert net income to cash basis) 39 40 41 Net Income Add back Depreciation 42 43 Annual Net Cash Inflow $ 44 Compute the payback period 45 Step 3 46 47 Investment 48 Net Annual $ 49 Cash Inflow 50 51 52 53 54 55 56 57 X G D A Calculate the Payback Period 4 5 6 The payback period is the length of time required for the cash to be coming in from an investment to equal the amount of cash originally spent when the investment was acquired. 7 8 9 Assumptions 10 11 $ 1,200,000 1 Purchase price of equipment 12 13 12 years 2 Useful life of equipment 14 15 $ 15,000 3 Revenue the machine will generate per year 16 17 4 Direct operating costs associated with earning 18 250,000 the revenue 19 20 100,000 5 Depreciation Expense per year 21 22 23 24 25 Using the above five assumptions, calculate how many years it will take to recoup the 26 original investment. 27 Find the machine's expected net income Step 1 28 29 Revenue 30 Less: 31 Direct Operating Costs 32 Depeciation 33 Net Income 34 35 36 Find the net annual cash inflow the machine is Step 2 37 L12 E F G H A 25 Using the above five assumptions, calculate how many years it will take to recoup the 26 original investment. 27 Step 1 Find the machine's expected net income 28 29 Revenue 30 Less: 31 Direct Operating Costs 32 Depeciation 33 34 $ Net Income 35 36 Step 2 Find the net annual cash inflow the machine is 37 38 expected to generate (convert net income to cash basis) 39 40 41 Net Income Add back Depreciation 42 43 Annual Net Cash Inflow $ 44 Compute the payback period 45 Step 3 46 47 Investment 48 Net Annual $ 49 Cash Inflow 50 51 52 53 54 55 56 57 X
