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.

Answer rating: 100% (QA)

ANSWER To calculate the net present value NPV of the project we need to determine the present value ... View the full answer