General 2 E F G 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 to equal the amount of cash originally spent when the investment was acquired. 10 Assumptions 11 12 1 Purchase price of equipment $ 500,000 13 14 2 Useful life of equipment 15 3 Revenue the machine will generate per year 17 18 4 Direct operating costs associated with earning the revenue 19 20 21 5 Depreciation Expense per year 22 PayBackPer URR + Calculation Mode: Automatic Workbook Statistics 6789 567 D $ $ 10 years 25,000 121,000 50,000 +0 A A B D E 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 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 24 25 26 7 28 29 30 1 2 3 4 35 36 7 38 39 0 42 af 31 32 33 34 37 40 41 43 44 PayBackPer URR Calculation Mode: Automatic Workbook Statistics Marcia Richards.....pdf Marcia Richards......pdf S $ A fx B C D E 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 DauBack Dor TIRR Net Annual Cash Inflow G Net Income $ $ $ 18 H General