10. Sankey Corporation is considering purchasing a machine. The cost of the machine is
$100,000. Its useful life is estimated to be 5 years and will have no residual values at the end of
its useful life. The machine would produce a product annually with the following financial
results:
Revenue 200,000
COGS 80,000
Gross Profit 120,000
Depreciation 20,000
Other Expenses 40,000
Net Income 60,000
Additional question: How to find annual net cash inflow for the cash payback period?
Net income generated by the asset is not the actual cash flow from asset. If we add depreciation to net income then that amount becomes net cash inflow from asset.
Net income is calculated after considering Noncash expense of Depreciation so we need Cash income which is Net income plus depreciation.
Payback period is calculated on net cash inflow during the year instead of net income.
Calculation of net cash inflow 

Net income 
$ 60,000.00 
Add: Depreciation 
$ 20,000.00 
Net cash Inflow 
$ 80,000.00 
Payback Period 

Choose Numerator 
/ 
Choose Denominator 
= 
Payback Period 
Investment required 
/ 
Net cash inflow 
= 
Payback Period 
$ 1,00,000.00 
/ 
$ 80,000.00 
= 
1.25 Years 
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