ABC Construction Company Ltd plans to build $95$ houses on a development site over the next four years.

The cost of the development site acquired for the construction of houses is $ $3,500,000,$ payable at the start

of the first year of construction. Annual sales of house expected to be as follows:

Year $1234$

Number of houses sold: $20253020$

Houses are built in the year of sale. Financial information relating to each type of house is as follows:

$

Selling price: $210,000$

Variable cost of construction: $90,000$

Selling prices and variable cost of construction are in current price terms, before allowing for selling price

inflation of $3\%$ per year and variable cost of construction inflation of $45\%$ per year.

Fixed infrastructure costs of $$1,200,000$ per year in current price terms would be incurred. These would not

relate to any specific house, but would be for the provision of new roads, gardens and utilities. Infrastructure

cost inflation is expected to be $2\%$ per year.

ABC Construction Company Ltd pays half$-$tax current year and half one year in arrears at an annual rate of

$15\%.$ The company can claim capital allowances of $25\%$ on the purchase cost of the development site on a

straight$-$line basis.

ABC Construction Company Ltd has a real after$-$tax cost of capital of $7\%$ per year and a nominal after$-$tax

cost of capital of $10\%$ per year.

Required:

Calculate the net present value of the proposed investment and comment on its financial acceptability.