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Explain what is meant by the radr method

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Reference no: EM133178455

Question - Your bank has been asked to evaluate the following project for a key client - The Craighouse Hotel Chain. The firm has supplied the following information summarised in the table below to request a loan for a new hotel in Edinburgh. The model selected for the analysis was a RADR model. In addition, the initial investment in the project is £450,000. The firm's cost of capital is 12%, however projects in this risk class have a 14% required rate of return. The risk-free rate is 8%.

Year

Cash Inflows

1

£230,000

2

190,000

3

150,000

4

130,000

5

£100,000

Required -

1. Explain what is meant by the RADR method and what discount rate would be applied in your calculations.

2. Calculate the NPV and suggest a decision on this project.

Reference no: EM133178455

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