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. Assumptions 1 Purchase price of equipment $ 1,200,000 2 Useful life of equipment 12 year 3 Revenue the machine will generate per year 15,000 4 Direct operating costs associated with earning the revenue 250,000 c0 5 Depreciation Expense per year 21 22 $ 100,000 23 24 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 30 Revenue 31 Less: 32 Direct Operating Costs 33 Depeciation 34 Net Income 35 36 37 Step 2 Find the net annual cash inflow the machine is 38 expected to generate (convert net income to cash basis) 39 40 41 Net Income $ 42 Add back Depreciation Depreciation Payback + JA A B C D E F Using the above five assumptions, calculate how many years it will take to recoup the original investment. B Find the machine's expected net income Step 1 Revenue 1 Less: 82 Direct Operating Costs 33 Depeciation 34 Net Income $ 35 36 Find the net annual cash inflow the machine is 37 Step 2 38 expected to generate (convert net income to cash basis) 39 40 41 Net Income $ $ 42 Add back Depreciation 43 Annual Net Cash Inflow 44 $ 45 Step 3 Compute the payback period 46 47 Investment Net Annual 48 $ 49 Cash Inflow 50 51 52 53 54 55 56 57 S8 59 60 Depreciation Payback 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. Assumptions 1 Purchase price of equipment $ 1,200,000 2 Useful life of equipment 12 year 3 Revenue the machine will generate per year 15,000 4 Direct operating costs associated with earning the revenue 250,000 c0 5 Depreciation Expense per year 21 22 $ 100,000 23 24 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 30 Revenue 31 Less: 32 Direct Operating Costs 33 Depeciation 34 Net Income 35 36 37 Step 2 Find the net annual cash inflow the machine is 38 expected to generate (convert net income to cash basis) 39 40 41 Net Income $ 42 Add back Depreciation Depreciation Payback + JA A B C D E F Using the above five assumptions, calculate how many years it will take to recoup the original investment. B Find the machine's expected net income Step 1 Revenue 1 Less: 82 Direct Operating Costs 33 Depeciation 34 Net Income $ 35 36 Find the net annual cash inflow the machine is 37 Step 2 38 expected to generate (convert net income to cash basis) 39 40 41 Net Income $ $ 42 Add back Depreciation 43 Annual Net Cash Inflow 44 $ 45 Step 3 Compute the payback period 46 47 Investment Net Annual 48 $ 49 Cash Inflow 50 51 52 53 54 55 56 57 S8 59 60 Depreciation Payback
