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Calculate the net present value of the project

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An investor is considering investing in an hotel. The initial costs are £1.000.000. There are also outgoings of £5.000 per month payable in advance. The outgoings will increase by 2% at the beginning of each year. There is a continuous income at a rate of £75.000 per year for 0 < t < 5 and a continuous income at a rate of £150.000 per year for t > 5. The hotel will be sold at a price of £1.000.000 after 10 years. Calculate the net present value of the project using an effective rate of interest of 5.5% per year. Should the project go ahead if the effective interest rate is higher than 5.5%? Explain your answer.

Reference no: EM132764554

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