Jack Nicklaus, the golfing pro and real estate developer, is thinking of acquiring an 800 acre property outside Atlanta that he intends to turn into an exclusive community for 600 families. The cost of this property and the necessary improvements is $30 million. After setting aside a mandatory 25 percent of the property as green space, he figures he can sell the remaining lots for an average of $90,000 an acre. By putting in a golf course on the 200 acres of green space, Nicklaus believes he can instead sell the lots for an average of $140,000 an acre. The golf course, including clubhouse, has a projected price tag of $6 million. In either event, the project is expected to take eight years to sell out at a rate of 75 lots per year. Jack Nicklaus faces a marginal tax rate of 40 percent and can write off his land and development costs by prorating these costs against each lot sold.
If his required return is 14 percent, should Jack Nicklaus go ahead with the initial project (i.e., a community with no golf course)?