Company ABC is considering opening a hotel. The initial outlay of this investment is 15 million. The present value of the expected cash flows from the hotel is 10 million. Company ABC is convinced that the project could be abandoned in 5 years by selling the hotel for 8 million. The variance in the present value of the cash flows is 0.1. While the opportunity cost of the project is 7%, the (continuously compounded) risk-free rate is 2%. Should the company go ahead with the project? Clearly show your workings and explain each step in your calculations.

Please, type it, as it is hard to understand handwriting.