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How long is the payback period for the project

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Sri Coffee Pty Ltd is considering investing in a new coffee bean roasting machine. The machine is estimated to cost $150,000 which can last for 7 years before it becomes too costly to maintain and can be sold for scrap at $15,000. The project is estimated to bring in additional $30,000 cash inflow and incur $10,000 in additional expenses related to the running the machine in the first year. The company expects there will be an annual sales growth of 5% from year 2 onward. Expenses are also expected to grow by 2% annually from the second year of the operation.

The company plans to fund the purchase of the new machine using a bank loan with an interest rate of 13%.

Problem 1: How long is the payback period for this project?

Reference no: EM132696918

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