A group of debt holders is considering cancel an outstanding debt from La Moreneta C.A., -a Construction Company- by receiving a small Bar in Calella de Mar, because La Moreneta C.A. cant produce enough Cash Flow to meet its short term obligations. The outstanding debt of La Moreneta is an amount totalling 60,000. This price would represent the value of all the Furniture, Machines and Equipment and will cancel all outstanding debt. La Moreneta C.A. owns the building and they wont charge rent for the next 4 years. Investors are not sure about the future revenues. However, they make some conservative projections, and estimate that the Bar would bring in revenues of about 68,000 per year. The investors have a candidate for a manager to run this Bar with his family, so offering him a decent salary, they are confident that this business can take off properly well. The corporate tax rate is estimated to be 25%. Cost of Goods Sold (variable cost) is estimated (average) to be 23% The operating and maintenance costs will amount about 34,000 per year. Revenues are expected to grow 7% yearly, along upcoming years The plan is to sell back the Bar in 4 years, and they estimate that they could receive an amount equivalent of the estimated yearly revenues in cash at the end of year 4, and they are aware that this selling price will represent a net profit, so it would be full taxed. The stock market last year return has been 19%, marking the reference Market Rate (Rm), treasury bonds return is currently 0.25%, marking our Risk Free rate and Beta for this operation is estimated to be 1,95

Ri = Rf + BETA * (Rm Rf)

1. What will the payback period?