Orlando has been an incredibly successful investor. One day, while observing a few students walking more than five blocks due to shortage of parking spots, he has a brilliant idea -- building a parking garage on a property next to campus! Knowing about the laid back nature of the students, he estimates that students would be willing to pay $100 a semester to have a reserved parking spot. Excited about the idea, he rushes into his office and calculates that the project will require an initial investment of $1,000,000, including the purchase of land right next to campus, and will bring in annual cash inflow of $90,000 next year, that will increase at a rate of 3% thereafter, forever. He can obtain financing from private investors at 11%. Ignore taxes.

a) Should Orlando undertake the project? Use the NPV rule to decide.

b) What is the rate of return on this project? (hint it is the rate at which the NPV is equal to zero)